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Consider two bonds, a 3-year bond paying an annual coupon of 5.20% and a 10-year...

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Finance

Consider two bonds, a 3-year bond paying an annual coupon of 5.20% and a 10-year bond also with an annual coupon of 5.20%. Both currently sell at a face value of $1,000. Now suppose interest rates rise to 8%.

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?

multiple choice

  • Long-term bonds

  • Short-term bonds

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