Consider two bonds, a 3-year bond paying an annual coupon of 11%, and a 20-year...
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Consider two bonds, a 3-year bond paying an annual coupon of 11%, and a 20-year bond, also with an annual coupon of 11%. Both bonds currently sell at par value. Now suppose that interest rates rise and the yield to maturity of the two bonds increases to 15%.
a. What is the new price of the 3-year bond?
b. What is the new price of the 20-year bond?
c. Do longer or shorter maturity bonds appear to be more sensitive to changes in interest rates?
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Consider two bonds, a 3-year bond paying an annual coupon of 11%, and a 20-year bond, also with an annual coupon of 11%. Both bonds currently sell at par value. Now suppose that interest rates rise and the yield to maturity of the two bonds increases to 15%. a. What is the new price of the 3-year bond? (Round your answer to 2 decimal places.) Price of the 3-year bond b. What is the new price of the 20-year bond? (Round your answer to 2 decimal places.) Price of the 20-year bond c. Do longer or shorter maturity bonds appear to be more sensitive to changes in interest rates? Longer Shorter
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