Sensitivity of the Bond Price to the Interest Rate
One-Year Bond Versus Perpetual Bond Consider a one-year bond with maturity value 1000 and coupon payment 100. The bond price is the present value 1000+100 1+R. Also, consider a perpetual bond with coupon payment 100. The bond price is the present value 100 R. The price of the perpetual bond is much more sensitive to the interest rate. 2 ................
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