Reference no: EM133028990

Question - Consider three bonds with 6.50% 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 7.50%?

b. What will be the price of the 8-year bond if its yield increases to 7.50%?

c. What will be the price of the 30-year bond if its yield increases to 7.50%?

d. What will be the price of the 4-year bond if its yield decreases to 5.50%?

e. What will be the price of the 8-year bond if its yield decreases to 5.50%?

f. What will be the price of the 30-year bond if its yield decreases to 5.50%?

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?