8 2 Bond Evaluation Part B - Sensitivity to Interest Rate 3 4 *Calculate the market prices under each combined conditions and answer question 1 and 2 (yellow cells) 5 Investors' Required Rate of Return (Interest Rate) 6 par coupon maturity 4.00% 5.00% 6.00% 7.00% 8.00% 7 $ 100.00 6.00% 20 ($127.18) ($112.46) ($100.00) ($89.41) ($80.36) 8 $ 100.00 6.00% 10 ($116.22) ($107.72) ($100.00) ($92.98) ($86.58) 9 $ 100.00 6.00% 5 ($108.90) ($104.33) ($100.00) ($95.90) ($92.01) 10 11 1) As the required yield on each bond rises (from 4% to 8%), what happens to the value of the bond? 12 13 14 2) When interest rates change, which bond is affected more, long bonds or short bonds? Why? 15 16