Problem 6-19 Interest Rate Risk (LO3)

Consider three bonds with 6.70% 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.

e. What will be the price of the 8-year bond if its yield decreases to 5.70%? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

f. What will be the price of the 30-year bond if its yield decreases to 5.70%? (Do not round intermediate calculations. Round your answer 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?

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?