Problem 6-19 Interest Rate Risk (LO3)

Consider three bonds with 5.60% 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 the 4-year bond if its yield increases to 6.60%? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. What will be the price of the 8-year bond if its yield increases to 6.60%? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

c. What will be the price of the 30-year bond if its yield increases to 6.60%? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

d. What will be the price of the 4-year bond if its yield decreases to 4.60%? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

e. What will be the price of the 8-year bond if its yield decreases to 4.60%? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

f. What will be the price of the 30-year bond if its yield decreases to 4.60%? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

g. Comparing your answers to parts (a), (b), and (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?

a.Bond price

b.Bond price

c.Bond price

d.Bond price

e.Bond price

f.Bond price

g.Long-term bonds. affected than short-term bonds

h.Long-term bonds affected than short-term bonds