Bond a pays $8,000 in 28 years. bond b pays $8,000 in 14 years. (to keep things simple, assume these are zero-coupon bonds, which means the $8,000 is the only payment the bondholder receives.)

suppose the interest rate is 5 percent.

using the rule of 70, the value of bond a is approximately and the value of bond b is approximately

.

now suppose the interest rate increases to 10 percent.

using the rule of 70, the value of bond a is now approximately and the value of bond b is approximately

comparing each bond’s value at 5 percent versus 10 percent, bond a’s value decreases by a percentage than bond b’s value.

the value of a bond (falls/rises) when the interest rate increases, and bonds with a longer time to maturity are (less/more) sensitive to changes in the interest rate.