Suppose a bond has 10 years to maturity; a $1000 face value; a coupon of 3%; and a yield to maturity of 2%. The coupon is paid semi-annually.

• What is the price of this bond?

• If the yield to maturity suddenly rises to 5%, what is the new price of the bond?

• Over the past month, 30-year Treasury bond yields have risen from around 1.9% to 2.2%. All else equal, what impact should this have on 30-year Treasury bond prices? In general, will this increase in rates have a greater impact on long-term or short-term bonds? What about low-coupon vs. high-coupon bonds? Why?