Consider 3 bonds with 5.4% 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. a. What will be the price of the 4-year bond if its yield increases to 6.4%? b. What will be the price of the 8-year bond if the yield increases to 6.4%? c. What will be the price of the 30-year bond if the yield increases to 6.4%?
Consider 3 bonds with 5.4% 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.
a. What will be the price of the 4-year bond if its yield increases to 6.4%?
b. What will be the price of the 8-year bond if the yield increases to 6.4%?
c. What will be the price of the 30-year bond if the yield increases to 6.4%?
d. What will be the price of the 4-year bond if its yield decreases to 4.4%?
e.What will be the price if the 8-year bond if its yield decreases to 4.4%?
f. What will be the price of the 30-year old bond if its yield decreases to 4.4%?
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?
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