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

Consider two bonds, a 3-year bond paying an annual coupon of 3%, and a 20-year bond, also with an annual coupon of 3%. Both bonds currently sell at par value. Now suppose that interest rates rise and the yield to maturity of the two bonds increases to 6%.

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

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