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Consider two bonds, a 3-year bond paying an annual coupon of 7%, and a 20-year bond, also with an annual coupon of 7%

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Consider two bonds, a 3-year bond paying an annual coupon of 7%, and a 20-year bond, also with an annual coupon of 7%. Both bonds currently sell at par value. Now suppose that interest rates rise and the yield to maturity of the two bonds increases to 10%.

 

a. What is the new price of the 3-year bond? (Round your answer to 2 decimal places.)

 

 

 

 

 

b. What is the new price of the 20-year bond? (Round your answer to 2 decimal places.)

 

 

 

 

 

c. Do longer or shorter maturity bonds appear to be more sensitive to changes in interest rates?

 

 

• Longer
• Shorter