Consider two bonds, a 3-year bond paying an annual coupon of 7.00% and a 10-year bond also with an annual coupon of 7.00%. Both currently sell at a face value of $1,000. Now suppose interest rates rise to 12%.
a. What is the new price of the 3-year bonds? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
b. What is the new price of the 10-year bonds? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
c. Which bonds are more sensitive to a change in interest rates?
Long-term bonds
Short-term bonds