Environment of increasing interest rates

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D Corporation has three bonds outstanding. All three have a coupon rate of 4 percent and a $1000 par value. The first bond has one year left to maturity. The second bond has 4 years left to maturity. The last bond has 8 years left to maturity. Assume for simplicity that the market rate for all three bonds is now 8 percent and these bonds pay annual interest payments.

What is the value for the first bond with one year left to maturity?

What is the value for the second bond with four years left to maturity?

What is the value for the first bond with eight years left to maturity?

Assuming the same stated interest rate, in an environment of increasing interest rates which bonds will decrease in value the most -- the one with a longer term (duration/maturity) or shorter term (duration/maturity)?

Reference no: EM132618610

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