The University of California has two bonds outstanding. Both issues have the same credit rating, a face value of $1,000 and a coupon rate of 4%. Coupons are paid twice a year. Bond A matures in 1 year, while bond B matures in 30 years. The market interest rate for similar bonds is 11%.
What is the price of bond A?
What is the price of bond B?
Now assume that yields increase to 14%. What is the price of bond A?
What is the price of bond B now?