Corporate Finance; Change in the Value of Outstanding Bonds Based on Interest Rates
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Scenario:
My pal Joe told me that the value of outstanding bonds changes whenever the going rate of interest changes. He expanded on his comments by saying that short-term interest rates are more volatile than long-term interest rates. Therefore short-term bond prices are more sensitive to interest rates than long-term bond prices.
Is Joe right?
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Solution Summary
The solution analyses the truth of the claim that the value of outstanding bonds change whenever the going rate of interest does and that short-term interest rates are more volatile than long-term ones. 78 words.
Solution Preview
Joe is right about the first point but wrong about the conclusion. Bond prices reflect the present value of a ...
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