Question

Consider three bonds with 5.80% 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 6.80%? (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 6.80%? (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 6.80%? (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 4.80%? (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 4.80%? (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 4.80%? (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 (). are long-term bonds more or less affected than short-term bonds by a decline in interest rates?

Answer 1

ДА DE B Bond prices 25 $ $ $ 965.97 =PV(6.8%,4,58,1000)*-1 939.82 =PV(6.8%,8,58,1000)*-1 873.38 | =PV(6.8%,30,58,1000)*-1 | 26 If interest rate is 6.8% 27 Short-term 28 Medium-term 29 Long-term 30 31 If interest rate is 4.8% 32 Short-term 33 Medium-term 34 Long-term a $ 965.97 b $ 939.82 c $ 873.38 d $ 1,035.62 e $ 1,065.16 f $ 1,157.29 8 More affected h More affected $ $ | $ 1,035.62 =PV(4.8%,4,58,1000)*-1 1,065.16 =PV(4.8%,8,58,1000)*-1 1,157.29=PV(4.8%,30,58,1000)*-1

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