Consider three bonds with 5.2% coupon rates, all making annual coupon payments and all selling at a face value of $1,000. The short-term bond has a maturity of 4 years, the intermediate-term bond has maturity 8 years, and the long-term bond has maturity 30 years.
a. What will be the price of each bond if their yields increase to 6.2%? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
4 Years = $
8 Years = $
30 Years Bond price = $
b. What will be the price of each bond if their yields decrease to 4.2%? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
4 Years = $
8 Years = $
30 Years Bond price = $
c. Are long-term bonds more or less affected than short-term bonds by a rise in interest rates?
More affected
Less affected
d. Would you expect long-term bonds to be more or less affected by a fall in interest rates?
More affected
Less affected