Understanding what maturity risk means for bonds is very important. Complete the following table by calculating the new bond prices and then the percentage price change (versus the current $1000 bond price) that results for the two bonds given below. For example, in the table if YTMs go up 0.5 percentage points (also known as 50 basis points or bp) on the short-term bond, that means that the YTM would go from 3.5% to 4.0%. Then calculate the new price at a YTM of 4.0% and then calculate the percentage change in price from today's price of $1000 to the new price. Note that a decrease in bond price will have a negative percentage change in price (pay attention to the sign).

Short term bond:

 Face value of $1000 with a fixed annual coupon rate of 3.5% with semi-annual payments, and a maturity in 2 years. Assume that today's YTM on a 2 year bond is 3.5% so therefore today's price is $1,000.

Long term bond: 

Face value of $1000 with a fixed annual coupon rate of 3.5% with semi-annual payments, and a maturity in 30 years. Assume that today's YTM on a 30 year bond is 3.5% so therefore today's price is $1,000.

	YTM goes down by 0.5% (50 basis pts)		YTM goes down by 0.25% (25 basis pts)		Today's Price	YTM goes up by 0.25% (25 basis pts)		YTM goes up by 0.5% (50 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					$1000
Long Term Bond					$1000