D Corporation has three bonds outstanding. All three have a coupon rate of 9 percent and a $1000 par value. The first bond has one year left to maturity. The second bond has 4 years left to maturity. The last bond has 8 years left to maturity. Assume for simplicity that the market rate for all three bonds is now 5 percent.
What is the value for the first bond with one year left to maturity? ___________
What is the value for the second bond with four years left to maturity? ______________
What is the value for the first bond with eight years left to maturity? ___________
Assuming the same stated interest rate, in an environment of increasing interest rates which bonds will decrease in value the most -- the one with a longer term (duration/maturity) or shorter term (duration/maturity)?