Bond
relationship)
Mason, Inc. has two bond issues outstanding, called Series A and Series B, both paying the same annual interest of
$95.
Series A has a maturity of
12
years, whereas Series B has a maturity of
1
year.a. What would be the value of each of these bonds when the going interest rate is (1)
6
percent, (2)
11
percent, and (3)
13
percent? Assume that there is only one more interest payment to be made on the Series B bonds.b. Why does the longer-term
(12-year)
bond fluctuate more when interest rates change than does the shorter-term
(1-year)
bond?a. When the going interest rate is
6
percent, the value of Series A bonds would be
$nothing .
(Round to the nearest cent.)When the going interest rate is
11
percent, the value of Series A bonds would be
$ .
(Round to the nearest cent.)When the going interest rate is
13
percent, the value of Series A bonds would be
$ .
(Round to the nearest cent.)When the going interest rate is
6
percent, the value of Series B bonds would be
$ .
(Round to the nearest cent.)When the going interest rate is
11
percent, the value of Series B bonds would be
$ .
(Round to the nearest cent.)When the going interest rate is
13
percent, the value of Series B bonds would be
$ .
(Round to the nearest cent.)b. Why does the longer-term
(12-year)
bond fluctuate more when interest rates change than does the shorter-term
(1-year)
bond? (Select the best choice below.)
A.
Because longer-term bondholders are locked into a particular interest rate for a longer period of time but are not exposed to any interest rate risk.
B.
Because longer-term bondholders are locked into a particular interest rate for a longer period of time and are therefore exposed to more interest rate risk.
C.
Because longer-term bondholders are locked into a particular interest rate for a longer period of time but are exposed to same interest rate risk as short-term bondholders.
D.
Because longer-term bondholders are locked into a particular interest rate for a longer period of time and are therefore exposed to less interest rate risk.
As per rules I am answering the first 4 subparts of the question
1: Series A
Using financial calculator
Input: FV= 1000; PMT = 95;N = 12; I/Y = 6
Solve for PV = -1293.43
Hence price of Series A = $1293.43
2: Series A
Using financial calculator
Input: FV= 1000; PMT = 95;N = 12; I/Y = 11
Solve for PV = -902.61
Hence price of Series A = $902.61
3: Series A
Using financial calculator
Input: FV= 1000; PMT = 95;N = 12; I/Y = 13
Solve for PV = -792.88
Hence price of Series A = $ 792.88
4: Series B
Using financial calculator
Input: FV= 1000; PMT = 95;N = 1; I/Y = 6
Solve for PV = -1033.02
Hence price of Series B = $1033.02
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