Question

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 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 11%? Round your answer to the nearest cent.

$

What will the value of the Bond S be if the going interest rate is 11%? Round your answer to the nearest cent.

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

- Long-term bonds have lower interest rate risk than do short-term bonds.
- Long-term bonds have lower reinvestment rate risk than do short-term bonds.
- The change in price due to a change in the required rate of return increases as a bond's maturity decreases.
- Long-term bonds have greater interest rate risk than do short-term bonds.
- The change in price due to a change in the required rate of return decreases as a bond's maturity increases.

Answer #1

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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%?...

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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%?...

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What will the value of the Bond L be if the going interest rate
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