Consider three bonds with 5.50% coupon rates, all making annual coupon payments and all selling at face value. The short-term bond has a maturity of 4 years, the intermediate-term bond has a maturity of 8 years, and the long-term bond has a maturity of 30 years.

a.What will be the price of the 4-year bond if its yield increases to 6.50%?

b.What will be the price of the 8-year bond if its yield increases to 6.50%

c.What will be the price of the 30-year bond if its yield increases to 6.50%?

d.What will be the price of the 4-year bond if its yield decreases to 4.50%?

e.What will be the price of the 8-year bond if its yield decreases to 4.50%?

f.What will be the price of the 30-year bond if its yield decreases to 4.50%?

g.Comparing your answers to parts (a), (b), and (c), are long-term bonds more or less affected than short-term bonds by a rise in interest rates?

• More affected
• Less affected

h.Comparing your answers to parts (d), (e), and (f), are long-term bonds more or less affected than short-term bonds by a decline in interest rates?

• More affected
• Less affected