Question

Consider three bonds with 6.00% 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 7.00%? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. What will be the price of the 8-year bond if its yield increases to 7.00%? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

c. What will be the price of the 30-year bond if its yield increases to 7.00%? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

d. What will be the price of the 4-year bond if its yield decreases to 5.00%? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

e. What will be the price of the 8-year bond if its yield decreases to 5.00%? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

f. What will be the price of the 30-year bond if its yield decreases to 5.00%? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

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?

b. What is the yield to maturity if interest is paid once a year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 4 decimal places.)

c. What is the yield to maturity if interest is paid semiannually? (Do not round intermediate calculations. Enter your answer as a percent rounded to 4 decimal places.)

Answer 1

a. What will be the price of the 4-year bond if its yield increases to 7.00%? = $966.13

b. What will be the price of the 8-year bond if its yield increases to 7.00%? $940.29

c. What will be the price of the 30-year bond if its yield increases to 7.00%? $875.91

d. What will be the price of the 4-year bond if its yield decreases to 5.00%? $1035.46

e. What will be the price of the 8-year bond if its yield decreases to 5.00%? $1064.63

f. What will be the price of the 30-year bond if its yield decreases to 5.00%? $1153.72

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?

Long term bonds are most affected than short term bonds by the rise ion 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?

Long term bonds are most affected than short term bonds by the rise ion interest rates

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