Question
Consider three bonds with 6.20% coupon rates, all making annual coupon payments and all selling at face value. The short-term bond has a maturity of
Consider three bonds with 6.20% 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 7.20%?(Do not round intermediate calculations. Round your answers to 2 decimal places.)
b.What will be the price of the 8-year bond if its yield increases to 7.20%?(Do not round intermediate calculations. Round your answers to 2 decimal places.)
c.What will be the price of the 30-year bond if its yield increases to 7.20%?(Do not round intermediate calculations. Round your answers to 2 decimal places.)
d.What will be the price of the 4-year bond if its yield decreases to 5.20%?(Do not round intermediate calculations. Round your answers to 2 decimal places.)
e.What will be the price of the 8-year bond if its yield decreases to 5.20%?(Do not round intermediate calculations. Round your answers to 2 decimal places.)
f.What will be the price of the 30-year bond if its yield decreases to 5.20%?(Do not round intermediate calculations. Round your answers to 2 decimal places.)
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
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