Question: two bonds a and b have the same credit rating...
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?