Bond Prices

Bond prices, whether they are short or long term bonds, depend solely on the interest rate (commonly known as yield). As such, a long term bond will be more volatile as any change in interest rates affects the bond for longer, but interest rates don’t tend to vary much in the short term, and therefore none of the bonds are likely to have high sort-run price volatility.

Share prices, on the other hand, depend (and are therefore affected) on a large number of variables (company related, sector related and economy related) so the probably of one or more events that affect one or more of those many variables is much greater and the share is likely to have the largest short-run price volatility. The industry in which the company operates is also significant, in this instance being a “technology” sector, which therefore can change significantly if a new technic/discovery happens.

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Both bonds will be selling at a discount (i.e. below face or par value) as the rate you are getting (the coupon rate of 8%) is less than the rate you require (the market rate of 10%), so this is not a good investment, everyone will want to sell, so the price will go down until the equilibrium is reached, which is when the redemption yield (or yield to maturity) is equal to the required, in this instance 10%, which will be the redemption yield of both bonds.

As for the price, the longer the bond, the bigger the impact of any rate differential (between coupon and market rate) so the 10 years bong will be cheaper than the three year bond.