Problem:
Assume your instructor has two bonds in his portfolio. Both have face values of $1,000 and pay a 10% annual coupon rate.
Bond L (longer maturity) matures in 15 years and Bond S (shorter maturity) matures in 1 year
What will the value of each bond be if the market interest rate for similar rated and maturing bonds is 5%, 8%, and 12%?
Why does the longer-term bond's price (Bond L) vary more than the price of the shorter-term bond (Bond S) when market interest rates change?
Regarding the yield curve - DO NOT include in discussion submitted.