The price of shorter term bond when interest rates change

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An investor has two bonds in his portfolio that have a face value of 1, 000 and pay a 10% annual coupon. Bond L matures in 15 years while Bond S matures in 1 year. What will the value of each bond be if the going interest payment is 5%, 8% and 12%? Assume that only one more interest payment is to be made on Bond S at its maturity and that 15 more payments are to be made on Bond L. Why does the longer-term bond price vary more than the price of the shorter term bond when interest rates change?

Reference no: EM131343301

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