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Consider two bonds, a 3-year bond paying an annual coupon of 5.40% and a 10-year bond also with an annual coupon of 5.40%. Both currently sell at face value of $1,000. Now suppose interest rates rise to 10%.
a. What is the new price of the 3-year bonds? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Bond price $
b. What is the new price of the 10-year bonds? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
c. Which bonds are more sensitive to a change in interest rates?
Long-term bonds
Short-term bonds
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