Question

Bond valuation An investor has two bonds in his portfolio that both have a face value of $1,000 and pay a 8% 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 your answer to the nearest cent. $ What will the value of the Bond S be if the going interest rate is 4%? Round your answer to the nearest cent. $ What will the value of the Bond L be if the going interest rate is 8%? Round your answer to the nearest cent. $ What will the value of the Bond S be if the going interest rate is 8%? Round your answer to the nearest cent. $ What will the value of the Bond L be if the going interest rate is 13%? Round your answer to the nearest cent. $ What will the value of the Bond S be if the going interest rate is 13%? Round your answer to the nearest cent. $

Answer 1

	Bond L	Bond S
FV	1000	1000
Coupon	80	80
n	15	1
Price
4%	$ 1,444.74	$ 1,038.46
8%	$ 1,000.00	$ 1,000.00
13%	$     676.88	$     955.75