Assume that Bond A represents a 10% annual coupon bond with 10 years to maturity, a face value of $1000, and a yield of 10%. Bond B represents a 10% annual coupon bond with five years to maturity, a face value of $1000, and also has a yield of 10%. Now, assume the yield on both bonds rises to 11%. On a percentage basis, which bond has lost more value, and why is this the case? Be sure to identify the percentage change in the prices of both bonds.© BrainMass Inc. brainmass.com June 3, 2020, 10:53 pm ad1c9bdddf
The 10-year bond will lose more of its value than the 5-year bond because ...
This solution discusses the effect of changes in market interest rates on the fair value of a previously-issued bond. It illustrates the procedure to determine the value and loss using an Excel 97-2003 worksheet.