Considerthreebondswith5.70%couponrates,allmakingannualcouponpaymentsand 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. Whatwillbethepriceofthe4-yearbondifitsyieldincreasesto6.70%?(Donotround
intermediate calculations. Round your answers to 2 decimal places.)
b. Whatwillbethepriceofthe8-yearbondifitsyieldincreasesto6.70%?(Donotround
intermediate calculations. Round your answers to 2 decimal places.)
c. Whatwillbethepriceofthe30-yearbondifitsyieldincreasesto6.70%?(Donotround
intermediate calculations. Round your answers to 2 decimal places.)
d. Whatwillbethepriceofthe4-yearbondifitsyielddecreasesto4.70%?(Donotround
intermediate calculations. Round your answers to 2 decimal places.)
965.82
$
Bond
price
939.35
$
Bond
price
870.76
$
Bond
price
$1,035.79
Bond
price
e. Whatwillbethepriceofthe8-yearbondifitsyielddecreasesto4.70%?(Donotround
intermediate calculations. Round your answers to 2 decimal places.)
f. Whatwillbethepriceofthe30-yearbondifitsyielddecreasesto4.70%?(Donot round
intermediate calculations. Round your answers to 2 decimal places.)
g. Comparingyouranswerstoparts(a),(b),and(c),arelong-termbondsmoreorless affected
than short-term bonds by a rise in interest rates?
More affected
h. Comparingyouranswerstoparts(d),(e),and(f),arelong-termbondsmoreorless affected
than short-term bonds by a decline in interest rates?
More affected
rev:09_14_2017_QC_CS-100101,09_19_2017_QC_CS-101042
$1,065.69
Bond
price
$1,160.99
Bond
price
Hints
Hint #1
Considerthreebondswith5.70%couponrates,allmakingannualcouponpaymentsand 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.Whatwillbethepriceofthe4-yearbondifitsyieldincreasesto6.70%?(Donotround
intermediate calculations. Round your answers to 2 decimal places.)
b. Whatwillbethepriceofthe8-yearbondifitsyieldincreasesto6.70%?(Donotround
intermediate calculations. Round your answers to 2 decimal places.)
c. Whatwillbethepriceofthe30-yearbondifitsyieldincreasesto6.70%?(Donot round
intermediate calculations. Round your answers to 2 decimal places.)
d. Whatwillbethepriceofthe4-yearbondifitsyielddecreasesto4.70%?(Donot round
intermediate calculations. Round your answers to 2 decimal places.)
e. Whatwillbethepriceofthe8-yearbondifitsyielddecreasesto4.70%?(Donotround
intermediate calculations. Round your answers to 2 decimal places.)
f. Whatwillbethepriceofthe30-yearbondifitsyielddecreasesto4.70%?(Donot round
intermediate calculations. Round your answers to 2 decimal places.)
$ 965.90+/-1%
Bondprice
$ 939.59+/-1%
Bondprice
$872.08+/-0.3%
Bondprice
$1,035.71+/-0.1%
Bondprice
$1,065.42+/-0.1%
Bondprice
g.Comparingyouranswerstoparts(a),(b),and(c),arelong-termbondsmoreorless affected
than short-term bonds by a rise in interest rates?
More affected
h.Comparingyouranswerstoparts(d),(e),and(f),arelong-termbondsmoreorless affected
than short-term bonds by a decline in interest rates?
More affected
rev:09_14_2017_QC_CS-100101,09_19_2017_QC_CS-101042
a.-f.
PriceofEachBondatDifferentYieldstoMaturity
MaturityofBond
g.&h.
Thetableshowsthatpricesoflonger-termbondsaremoresensitivetochangesininterest rates,
regardless of the direction of interest rates.
$1,159.12+/-0.3%
Bondprice
Yield
4Years
8Years
30Years
4.70%
$1,035.71
$1,065.42
$1,159.12
5.70%
$1,000.00
$1,000.00
$1,000.00
6.70%
$965.90
$939.59
$872.08
