(Interest-rate risk) Philadelphia Electric has many bonds trading on the New York Stock Exchange. Suppose PhilEl''s bonds have identical coupon rates of 9.125% but that one issue matures in 1 year, one in 7 years, and the third in 15 years. Assume that a coupon payment was made yesterday.
i. If the yield to maturity for all three bonds is 8%, what is the fair price of each bond?
ii. Suppose that the yield to maturity for all of these bonds changed instantaneously to 7%.What is the fair price of each bond now?
iii. Suppose that the yield to maturity for all of these bonds changed instantaneously again, this time to 9%. Now what is the fair price of each bond?