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

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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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