Prices of shorter-term bonds with the same coupon

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The prices of longer-term bonds are more volatile than the prices of shorter-term bonds with the same coupon. The prices of bonds with smaller coupons are more volatile than bonds with larger coupons for the same term to maturity. However, you cannot compare the relative price changes on bonds with different coupons and maturities unless you consider their durations. Consider the following bonds:

Bond Coupon Term

A 8% 8 years

B 14% 10 years

The price of which bond will fall more if the interest rates rise from the current yield to maturity of 8 percent? To answer the question, calculate the duration of both bonds.

Reference no: EM13722783

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