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Consider three bonds with 6% 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 4-year bond if it yield increases to 7%

B. What will be the price of the 8 year bond if it yield increases to 7%.

C. What will be the price of the 30-year bond if it yield increases to 7%?

D. What will be the price of the 4-year bond if it yield decreases to 5%?

E. What will be the price of the 8-year bond if it yield decreases to 5%?

F. What will be the price of the 30-year bond if its yield decreases to 5%?

G. Comparing your answers to parts (a), (b), (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?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92648794

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