Discussion 1 wk5

Two bonds A and B have the same credit rating, the same par value and the same coupon rate. Bond A has 30 years to maturity and bond B has 5 years to maturity.

- Discuss which bond will trade at a higher price in the market 

- Discuss what happens to the market price of each bond if the interest rates in the economy go up. 

- Which bond would have a higher percentage price change if interest rates go up? 

- Try to substantiate your argument with a numerical example.

As a bond investor, if you expect slowdown in the economy over the next 12 months, what would be your investment strategy?