Consider three bonds with 6% 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 4-year bond if it yield increases to 7%
B. What will be the price of the 8 year bond if it yield increases to 7%.
C. What will be the price of the 30-year bond if it yield increases to 7%?
D. What will be the price of the 4-year bond if it yield decreases to 5%?
E. What will be the price of the 8-year bond if it yield decreases to 5%?
F. What will be the price of the 30-year bond if its yield decreases to 5%?
G. Comparing your answers to parts (a), (b), (c), are long-term bonds more or less affected than short-term bonds by a rise in interest rates?
H. Comparing your answers to parts (d), (e,), and (f), are long-term bonds more or less affected than short-term bonds by a decline in interest rates?