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 a slowdown in the economy over the next 12 months, what would be your investment strategy?
Provide your explanations and definitions in detail and be precise. Comment on your findings. Provide references for content when necessary. Provide your work in detail and explain in your own words. Support your statements with peer-reviewed in-text citation(s) and reference(s).