<img alt="Bond A pays $8,000 in 20 years. Bond B pays $8,000 in 10 years. (To keep things simple, assume these are zero-coupon bonds, which means the $8,000 is the only payment the bondholder receives.) Suppose the interest rate is 7 percent. Using the rule of 70, the value of Bond A is approximately ,and the value of Bond B is approximately Now suppose the interest rate increases to 14 percent. Using the rule of 70, the value of Bond A is now approximately , and the value of Bond B is approximately Comparing each bonds value at 7 percent versus 14 percent, Bond As value decreases by a percentage than Bond Bs value The value of a bond when the interest rate increases, and bonds with a longer time to maturity are sensitive to changes in the interest rate." src="//img.wizedu.com/questions/4250d500-ccf6-11ec-9275-27319f007e10.png" aria-describedby="f37"/>Bond A pays $8,000 in 20 years. Bond B pays $8,000 in 10 years. (To keep things simple, assume these are zero-coupon bonds, which means the $8,000 is the only payment the bondholder receives.) Suppose the interest rate is 7 percent. Using the rule of 70, the value of Bond A is approximately _______ ,and the value of Bond B is approximately _______ .Now suppose the interest rate increases to 14 percent. Using the rule of 70, the value of Bond A is now approximately _______ , and the value of Bond B is approximately _______ .Comparing each bond's value at 7 percent versus 14 percent, Bond A's value decreases by a _______ percentage than Bond B's value The value of a bond _______ when the interest rate increases, and bonds with a longer time to maturity are _______ sensitive to changes in the interest rate.

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In: Economics

Bond A pays $8,000 in 20 years. Bond B pays $8,000 in 10 years. (To keep...

Bond A pays $8,000 in 20 years. Bond B pays $8,000 in 10 years. (To keep things simple, assume these are zero-coupon bonds, which means the $8,000 is the only payment the bondholder receives.)

Suppose the interest rate is 7 percent.

Using the rule of 70, the value of Bond A is approximately _______ ,and the value of Bond B is approximately _______ .

Now suppose the interest rate increases to 14 percent.

Using the rule of 70, the value of Bond A is now approximately _______ , and the value of Bond B is approximately _______ .

Comparing each bond's value at 7 percent versus 14 percent, Bond A's value decreases by a _______ percentage than Bond B's value

The value of a bond _______ when the interest rate increases, and bonds with a longer time to maturity are _______ sensitive to changes in the interest rate.

Expert Solution

Rahul Sunny answered 2 years ago

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