What is the fair price of each bond

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BP oil has many bonds trading on the New York Stock Exchange. Suppose BP's bonds have identical coupon rates of 5.7% but that one issue matures in 1 year, one in 6 years, and the third in 14 years. Assume that a coupon payment was made yesterday.

a. if the yield to maturity for all three bonds is 8%, what is the fair price of each bond?

b. suppose that the yield to maturity for all of these bonds changed instantaneously to 7%. What is the fair price of each bond now?

c. suppose that the yield to maturity for all of these bonds changed instantaneously again, this time to 11%. Now what is the fair price of each bond?

d. based on the fair prices at the various yields to maturity, is interest-rate risk the same, higher, or lower for longer versus shorter maturity bonds? Please show me how to calculate the answers.

Reference no: EM13298127

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