Question

Table 10-2 Impact of time to maturity on bond prices Time Period in Years to Maturity (10% Interest Payment, Various Times to Maturity) Bond Price with 8% Bond Price with 12% Yield to Maturity Yield to Maturity $1,000.00 1,018.52 1,079.85 1,134.20 1,171.19 1,196.36 1,213.50 1,225.16 $1,000.00 982.14 927.90 887.00 863.78 850.61 843.14 838.90

Answer 1

a). Bond price can be directly from column 2 of above table for YTM of 8%

Maturity	Bond Price
5	$1079.85
25	$1213.50
30	$1225.16

b). Bond price can be directly from column 3 of given table for YTM of 12%

Maturity	Bond Price
5	$927.90
25	$843.14
30	$838.90

c). When interest rate are going down, price of long term bonds will decrease more as compare to short term bonds, So it is beneficial to hold short term bond. So option a is correct.

d).  When interest rate are going up, price of long term bonds will increase more as compare to short term bonds, So it is beneficial to hold long term bond. So option c is correct.