Consider three bonds with 6.80% coupon rates, all making annual coupon payments and all selling at face value. The short-term bo
nd 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 7.80%? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
b. What will be the price of the 8-year bond if its yield increases to 7.80%? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
c. What will be the price of the 30-year bond if its yield increases to 7.80%? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
d. What will be the price of the 4-year bond if its yield decreases to 5.80%? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
e. What will be the price of the 8-year bond if its yield decreases to 5.80%? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
f. What will be the price of the 30-year bond if its yield decreases to 5.80%? (Do not round intermediate calculations. Round your answers 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?
More or less affected
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?
More or less affected
a. What will be the price of the 4-year bond if its yield increases to 7.80%? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
b. What will be the price of the 8-year bond if its yield increases to 7.80%? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
c. What will be the price of the 30-year bond if its yield increases to 7.80%? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
d. What will be the price of the 4-year bond if its yield decreases to 5.80%? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
e. What will be the price of the 8-year bond if its yield decreases to 5.80%? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
f. What will be the price of the 30-year bond if its yield decreases to 5.80%? (Do not round intermediate calculations. Round your answers 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?
More or less affected
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?
More or less affected
1 answer:
Answer:
Part a to f are answered in the tables attached. Part g and h are answered below:
Explanation:
Value of a bond is given by the excel function, PV = PV(R,N,PMT,FV)
R - YTM
N - years to maturity
PMT - Coupon
FV - Par value
Coupon = Coupon rate * par value
g - From the column change, Long-term bonds are more affected than short-term bonds by rise in interest rates
h - From the column change, Long-term bonds are more affected than short-term bonds by decline in interest rates
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