Question
Consider three bonds with 6.4% coupon rates, all making annual coupon payments and all selling at a face value of $1,000. The short-term bond has
Consider three bonds with 6.4% coupon rates, all making annual coupon payments and all selling at a face value of $1,000. The short-term bond has a maturity of 4 years, the intermediate-term bond has maturity 8 years, and the long-term bond has maturity 30 years.
a. | What will be the price of each bond if their yields increase to 7.4%? (Do not round intermediate calculations. Round your answers to 2 decimal places.) |
4 Years | 8 Years | 30 Years | |
Bond price | $ | $ | $ |
b. | What will be the price of each bond if their yields decrease to 5.4%? (Do not round intermediate calculations. Round your answers to 2 decimal places.) |
4 Years | 8 Years | 30 Years | |
Bond price | $ | $ | $ |
c. | Are long-term bonds more or less affected than short-term bonds by a rise in interest rates? | ||||
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d. | Would you expect long-term bonds to be more or less affected by a fall in interest rates? | ||||
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