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Consider three bonds with 5 % coupon rates, all selling at face value. The short - term bond has a maturity of 4 years, the
Consider three bonds with coupon rates, all selling at face value. The shortterm bond has a maturity of years, the intermediateterm bond has maturity years, and the longterm bond has maturity years.
a
What will be the price of each bond if their yields increase to Do not round intermediate calculations. Round your answers to decimal places.
Years Years Years
Bond price $
$
$
b
What will be the price of each bond if their yields decrease to Do not round intermediate calculations. Round your answers to decimal places.
Years Years Years
Bond price $
$
$
c Which bond is most sensitive to changes in the interest rates?multiple choice
Year
Year
Year
They are all the same
d When interest rates rise then the price of the bond
fall
c Are longterm bonds more or less affected than shortterm bonds by a rise in interest rates?
multiple choice
More affected
Less affected
dWould you expect longterm bonds to be more or less affected by a fall in interest rates?
multiple choice
More affected
Less affected
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