Question

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 20 years, while Bond S matures in 1 year.

- What will the value of the Bond L be if the going interest rate
is 7%, 9%, and 12%? 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 on Bond L. Round your answers to the nearest cent.
7% 9% 12% Bond L $ $ $ Bond S $ $ $ - 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 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.
- 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.

-Select-IIIIIIIVVItem 7

Answer #1

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eBook Problem Walk-Through
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 12
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What will the value of the Bond L be if the going interest rate
is 7%, 9%, and 13%? Assume that only one more interest payment is
to be made on Bond S at its maturity and that 12 more payments are
to...

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Assume that only one more interest payment is to be made on Bond
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