Less affected than short-term bonds by rise in interest rate

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Reference no: EM131446777

Consider three bonds with 6.4% coupon rates, all making annual coupon payments and all selling at a face value of $1,000. The short-term bond has a maturity of 4 years, the intermediate-term bond has maturity 8 years, and the long-term bond has maturity 30 years.

a. What will be the price of each bond if their yields increase to 7.4%? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

4 Years 8 Years 30 Years

Bond price $ $ $

b. What will be the price of each bond if their yields decrease to 5.4%? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

4 Years 8 Years 30 Years

Bond price $ $ $

c. Are long-term bonds more or less affected than short-term bonds by a rise in interest rates?

More affected

Less affected

d. Would you expect long-term bonds to be more or less affected by a fall in interest rates?

More affected

Less affected

Reference no: EM131446777

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