For a 10%, $1,000 coupon bond, a longer term bond (say, 15 years) is: less affected by changes in the market rate than a 1-year bond. affected the same by changes in the market rate than a 1-year bond. more affected by changes in the market rate than a 1-year bond. Cannot be determined.

Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter4: Bond Valuation
Section: Chapter Questions
Problem 21P: Bond Valuation and Changes in Maturity and Required Returns Suppose Hillard Manufacturing sold an...
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Exploring Finance: Coupon Bonds. 

Coupon Bonds

Conceptual Overview: Explore the value of fixed-interest coupon bonds of different terms.

This graph shows the value of 10% coupon bonds of different terms across differing market interest rates. Each bond pays INT = $100 at the end of each year and returns M = $1,000 at maturity. For comparison, the blue line depicts the value of a one-year bond. The term of the other bond in years may be changed using the slider. Drag on the graph to change the current market interest rate (rd) at which the bond (orange curve) is evaluated.

 

5.  For a 10%, $1,000 coupon bond, a longer term bond (say, 15 years) is:

  1. less affected by changes in the market rate than a 1-year bond.
  2. affected the same by changes in the market rate than a 1-year bond.
  3. more affected by changes in the market rate than a 1-year bond.
  4. Cannot be determined.

 

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