Two bonds A and B have the same credit rating, the same par value and the same coupon rate. Bond A has 30 years to maturity and bond B has 5 years to maturity.
– Discuss which bond will trade at a higher price in the market
– Discuss what happens to the market price of each bond if the interest rates in the economy go up.
– Which bond would have a higher percentage price change if interest rates go up?
– Try to substantiate your argument with a numerical example.
As a bond investor, if you expect slowdown in the economy over the next 12 months, what would be your investment strategy?
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