Consider three bonds with 6.8% coupon rates
Question
Consider three bonds with 6.8% coupon rates, all making annual coupon payments and all selling at a face value of
$1,000. The short-term bond has a maturity of 4 years, the intermediate-term bond has maturity 8 years, and the long-term bond has maturity 30 years.
| a. | What will be the price of each bond if their yields increase to 7.8%? (Do not round intermediate calculations. Round your answers to 2 decimal places.) |
| 4 Years | 8 Years | 30 Years | |
| Bond price | $ | $ | $ |
| b. | What will be the price of each bond if their yields decrease to 5.8%? (Do not round intermediate calculations. Round your answers to 2 decimal places.) |
| 4 Years | 8 Years | 30 Years | |
| Bond price | $ | $ | $ |
| c. | Are long-term bonds more or less affected than short-term bonds by a rise in interest rates? |
| More affectedLess affected |
| d. | Would you expect long-term bonds to be more or less affected by a fall in interest rates? |
| More affectedLess affected |
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