Understanding what maturity risk means for bonds is very important. Complete the following table by calculating the new bond prices and then the % price change that results for the two bonds given below. For example, in the table if YTMs go up 1 percentage point (also known as 100 basis points or bp) on the short-term bond, that means that the YTM would go from 3% to 4%. Then calculate the new price at a YTM of 4% and then calculate the % change in price from today's price of $1,000 to the new price.

Short term bond: Face value of $1,000 with a fixed annual coupon rate of 3% with semi-annual payments, and a maturity in 2 years. Assume that today's YTM on a 2 year bond is 3% so therefore today's price is $1,000.

Long term bond: Face value of $1,000 with a fixed annual coupon rate of 3% with semi-annual payments, and a maturity in 30 years. Assume that today's YTM on a 30 year bond is 3% so therefore today's price is $1,000.

	YTM goes down by 1.0% (100 basis pts)		YTM goes down by 0.5% (50 basis pts)		Today's Price	YTM goes up by 0.5% (50 basis pts)		YTM goes up by 1.0% (100 basis pts)
	New $ Price	% change from Today	New $ Price	% change from Today		New $ Price	% change from Today	New $ Price	% change from Today
Short Term Bond					$1,000
Long Term Bond					$1,000