Consider three bonds with 8% 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 9%? (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 9%? (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 9%? (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 7%? (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 7%? (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 7%? (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 8% 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 9%? (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 9%? (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 9%? (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 7%? (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 7%? (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 7%? (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?
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 6 images
