Consider two bonds, a 3-year bond paying an annual coupon of 7%, and a 20-year bond, also with an annual coupon of 7%. Both bonds currently sell at par value. Now suppose that interest rates rise and the yield to maturity of the two bonds increases to 10%.

a.What is the new price of the 3-year bond?(Round your answer to 2 decimal places.)

b.What is the new price of the 20-year bond?(Round your answer to 2 decimal places.)

c.Do longer or shorter maturity bonds appear to be more sensitive to changes in interest rates?

• Longer
• Shorter