Problem 6-19 Interest Rate Risk (LO3) Consider three bonds with 5.00% 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 6.00%? (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 6.00%? (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 6.00%? (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 4.00%? (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 4.00%? (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 4.00%? (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 loss affoctog
Problem 6-19 Interest Rate Risk (LO3) Consider three bonds with 5.00% 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 6.00%? (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 6.00%? (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 6.00%? (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 4.00%? (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 4.00%? (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 4.00%? (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 loss affoctog
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
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Transcribed Image Text:Problem 6-19 Interest Rate Risk (LO3)
Consider three bonds with 5.00% 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.
ts
a. What will be the price of the 4-year bond if its yield increases to 6.00%? (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 6.00%? (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 6.00%? (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 4.00%? (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 4.00%? (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 4.00%? (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 tham short-term bonds by a rise in
interest rates?
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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?
a.
Bond price
b.
Bond price
Bond price
d.
Bond price
Bond price
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