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 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 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 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. $ Why does the longer-term bond’s price vary more than the price of the shorter-term bond when interest rates change? 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. Long-term bonds have greater interest rate risk than do short-term bonds.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 11P

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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 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 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 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.
$
Why does the longer-term bond’s price vary more than the price of the shorter-term bond when interest rates change?
1. The change in price due to a change in the required rate of return decreases as a bond's maturity increases.
2. Long-term bonds have lower interest rate risk than do short-term bonds.
3. Long-term bonds have lower reinvestment rate risk than do short-term bonds.
4. The change in price due to a change in the required rate of return increases as a bond's maturity decreases.
5. Long-term bonds have greater interest rate risk than do short-term bonds.
-Select-IIIIIIIVVItem 7

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