In: Finance
Consider three bonds with 8 percent coupon rates, all selling at face value. The short-term bond has a maturity of 4 years, the intermediate-term bond has maturity of 8 years, and the long-term bond has maturity of 30 years. a) What will happen to the price of each bond if their yields increase to 10 percent? b) What will happen to the price of each bond if their yields decrease to 6 percent? c) What do you conclude about the relationship between time to maturity and the sensitivity of bond prices to interest rates?