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Now consider a four-year bond with a face value of $5,000 and an annual coupon payment...

  1. Now consider a four-year bond with a face value of $5,000 and an annual coupon payment of $125. Suppose prevailing interest rates in the economy are 1.0%.
  1. Calculate the predicted price of this bond. Did the price change by more or less than what you found in part a of the previous question?

  1. Given your answer to part a, which would you rather hold if interest rates in the economy are expected to increase: long-term bonds or short-term bonds? Why?
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