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.)
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.)
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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Question
Transcribed Image Text: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.
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?
Bond price
$
965.43
a.
b.
Bond price
$
938.15
Bond price
$
863.81
с.
d.
Bond price
$
1,036.21
e.
Bond price
$
1,067.05
f.
Bond price
$
1,170.84
g.
Long-term bonds
affected than short-term bonds
h.
Long-term bonds
affected than short-term bonds
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