Consider three bonds with 5.10% 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 6.10%? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What will be the price of the 8-year bond if its yield increases to 6.10%? (Do not round intermediate calculations. Round your answer to 2 decimal places.) c. What will be the price of the 30-year bond if its yield increases to 6.10%? (Do not round intermediate calculations. Round your answer to 2 decimal places.) d. What will be the price of the 4-year bond if its yield decreases to 4.10%? (Do not round intermediate calculations. Round your answer to 2 decimal places.) e. What will be the price of the 8-year bond if its yield decreases to 4.10%? (Do not round intermediate calculations. Round your answer to 2 decimal places.) f. What will be the price of the 30-year bond if its yield decreases to 4.10%? (Do not round intermediate calculations. Round your answer to 2 decimal places.) 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?
Consider three bonds with 5.10% 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 6.10%? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What will be the price of the 8-year bond if its yield increases to 6.10%? (Do not round intermediate calculations. Round your answer to 2 decimal places.) c. What will be the price of the 30-year bond if its yield increases to 6.10%? (Do not round intermediate calculations. Round your answer to 2 decimal places.) d. What will be the price of the 4-year bond if its yield decreases to 4.10%? (Do not round intermediate calculations. Round your answer to 2 decimal places.) e. What will be the price of the 8-year bond if its yield decreases to 4.10%? (Do not round intermediate calculations. Round your answer to 2 decimal places.) f. What will be the price of the 30-year bond if its yield decreases to 4.10%? (Do not round intermediate calculations. Round your answer to 2 decimal places.) 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?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Problem 6-19 Interest Rate Risk (LO3)
Consider three bonds with 5.10% 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.
need last 2
Transcribed Image Text:**Bond Pricing and Interest Rate Impact Analysis**
Consider three bonds with 5.10% 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.
**Questions:**
a. What will be the price of the 4-year bond if its yield increases to 6.10%?
*(Do not round intermediate calculations. Round your answer to 2 decimal places.)*
b. What will be the price of the 8-year bond if its yield increases to 6.10%?
*(Do not round intermediate calculations. Round your answer to 2 decimal places.)*
c. What will be the price of the 30-year bond if its yield increases to 6.10%?
*(Do not round intermediate calculations. Round your answer to 2 decimal places.)*
d. What will be the price of the 4-year bond if its yield decreases to 4.10%?
*(Do not round intermediate calculations. Round your answer to 2 decimal places.)*
e. What will be the price of the 8-year bond if its yield decreases to 4.10%?
*(Do not round intermediate calculations. Round your answer to 2 decimal places.)*
f. What will be the price of the 30-year bond if its yield decreases to 4.10%?
*(Do not round intermediate calculations. Round your answer to 2 decimal places.)*
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?
**Answers:**
| | Bond Price |
|---|------------|
| a. | $965.43 |
| b. | $938.15 |
| c. | $863.81 |
| d. | $1,036.21 |
| e. | $1,067.05 |
| f. | $1,170.84 |
- **g. Long-term bonds are more affected than short-term bonds** by a rise in interest
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