Consider three bonds with 6.70% 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. What will be the price of the 4-year bond if its yield increases to 7.70%? What will be the price of the 8-year bond if its yield increases to 7.70%? What will be the price of the 30-year bond if its yield increases to 7.70%? What will be the price of the 4-year bond if its yield decreases to 5.70%? What will be the price of the 8-year bond if its yield decreases to 5.70%? What will be the price of the 30-year bond if its yield decreases to 5.70%? 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? 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?

Coupon rate = 6.70%Par value = $1000Short-term bond maturity = 4 yearsIntermediate bond maturity = 8…

Answered: Consider three bonds with 6.70% coupon…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 4P

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Consider three bonds with 6.70% 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.

What will be the price of the 4-year bond if its yield increases to 7.70%?
What will be the price of the 8-year bond if its yield increases to 7.70%?
What will be the price of the 30-year bond if its yield increases to 7.70%?
What will be the price of the 4-year bond if its yield decreases to 5.70%?
What will be the price of the 8-year bond if its yield decreases to 5.70%?
What will be the price of the 30-year bond if its yield decreases to 5.70%?
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?
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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