The Maturity Effect For the same coupon rate, a longer-term bond has a greater percentage price change
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The Maturity Effect For the same coupon rate, a longer-term bond has a greater percentage price change than a shorter-term bond when their market discount rates change by the same amount.
Focus on Bond A, D, and G. According to the maturity effect, Bond G should have the highest percentage change of price when market discount rate changes. However, here Bond D (the intermediate term bond) has the highest percentage change of price among the three. Please think about why this is the case. Hint: how do we price a bond?
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