Question

A) An investor has two bonds in his portfolio that have a face value of $1,000 and pay a 6% annual coupon. Bond L matures in 19 years, while Bond S matures in 1 year. Assume that only one more interest payment is to be made on Bond S at its maturity and that 19 more payments are to be made on Bond L.

-What will the value of the Bond L be if the going interest rate is 6%? Round your answer to the nearest cent.

___________________$

-What will the value of the Bond S be if the going interest rate is 6%? Round your answer to the nearest cent.

________________$

-What will the value of the Bond L be if the going interest rate is 9%? Round your answer to the nearest cent.

______________$

-What will the value of the Bond S be if the going interest rate is 9%? Round your answer to the nearest cent.

_____________$

-What will the value of the Bond L be if the going interest rate is 12%? Round your answer to the nearest cent.

____________$

-What will the value of the Bond S be if the going interest rate is 12%? Round your answer to the nearest cent.

__________$

B) Why does the longer-term bond’s price vary more than the price of the shorter-term bond when interest rates change?

A) Long-term bonds have greater interest rate risk than do short-term bonds.

B) The change in price due to a change in the required rate of return decreases as a bond's maturity increases.

C) Long-term bonds have lower interest rate risk than do short-term bonds.

D) Long-term bonds have lower reinvestment rate risk than do short-term bonds.

E) The change in price due to a change in the required rate of return increases as a bond's maturity decreases.

Answer #1

An investor has two bonds in his portfolio that have a face
value of $1,000 and pay a 7% annual coupon. Bond L matures in 12
years, while Bond S matures in 1 year.
Assume that only one more interest payment is to be made on Bond
S at its maturity and that 12 more payments are to be made on Bond
L.
What will the value of the Bond L be if the going interest rate
is 6%? Round...

An investor has two bonds in his portfolio that have a face
value of $1,000 and pay a 6% annual coupon. Bond L matures in 15
years, while Bond S matures in 1 year.
Assume that only one more interest payment is to be made on Bond
S at its maturity and that 15 more payments are to be made on Bond
L.
What will the value of the Bond L be if the going interest rate
is 4%? Round...

An investor has two bonds in his portfolio that have a face
value of $1,000 and pay a 9% annual coupon. Bond L matures in 11
years, while Bond S matures in 1 year.
Assume that only one more interest payment is to be made on Bond
S at its maturity and that 11 more payments are to be made on Bond
L.
What will the value of the Bond L be if the going interest rate
is 6%? Round...

An investor has two bonds in his portfolio that have a face
value of $1,000 and pay an 8% annual coupon. Bond L matures in 10
years, while Bond S matures in 1 year.
Assume that only one more interest payment is to be made on Bond
S at its maturity and that 10 more payments are to be made on Bond
L.
What will the value of the Bond L be if the going interest rate
is 5%? Round...

An investor has two bonds in his portfolio that have a face
value of $1,000 and pay a 9% annual coupon. Bond L matures in 13
years, while Bond S matures in 1 year.
Assume that only one more interest payment is to be made on Bond
S at its maturity and that 13 more payments are to be made on Bond
L.
What will the value of the Bond L be if the going interest rate
is 6%? Round...

eBook
An investor has two bonds in his portfolio that have a face
value of $1,000 and pay an 11% annual coupon. Bond L matures in 13
years, while Bond S matures in 1 year.
Assume that only one more interest payment is to be made on Bond
S at its maturity and that 13 more payments are to be made on Bond
L.
What will the value of the Bond L be if the going interest rate
is 4%?...

eBook
An investor has two bonds in his portfolio that have a face
value of $1,000 and pay a 12% annual coupon. Bond L matures in 11
years, while Bond S matures in 1 year.
Assume that only one more interest payment is to be made on Bond
S at its maturity and that 11 more payments are to be made on Bond
L.
What will the value of the Bond L be if the going interest rate
is 5%?...

An I nvestor has two bonds in his portfolio that have a face
value of $1,000 and pay a 7% annual coupon. Bond L matures in 12
years, while Bond S matures in 1 year.
Assume that only one more interest payment is to be made on
Bond S at its maturity and that 12 more payments are to be made on
Bond L.
What will the value of the Bond L be if the going interest
rate is 4%?...

An investor has two bonds in his portfolio that have a face
value of $1,000 and pay a 10% annual coupon. Bond L matures in 17
years, while Bond S matures in 1 year.
a. What will the value of the Bond L be if the going interest
rate is 7%, 8%, and 11%? Assume that only one more interest payment
is to be made on Bond S at its maturity and that 17 more payments
are to be made...

An investor has two bonds in his portfolio that have a face
value of $1,000 and pay a 12% annual coupon. Bond L matures in 20
years, while Bond S matures in 1 year.
A. What will the value of the Bond L be if the going interest
rate is 7%, 8%, and 13%? Assume that only one more interest payment
is to be made on Bond S at its maturity and that 20 more payments
are to be made...

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