Question

Consider three bonds with 5.60% 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 6.60%? (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 6.60%? (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 6.60%? (Do not round intermediate calculations. Round your your answer to 2 decimal places.)

Answer 1

a.

Calculating Bond Price,

Using TVM Calculation,

PV = [FV = 1,000, PMT = 56, T = 4, I = 0.066]

PV = $965.82

b.

Calculating Bond Price,

Using TVM Calculation,

PV = [FV = 1,000, PMT = 56, T = 8, I = 0.066]

PV = $939.35

c.

Calculating Bond Price,

Using TVM Calculation,

PV = [FV = 1,000, PMT = 56, T = 30, I = 0.066]

PV = $870.76