Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Bond Valuation and Interest Rate Risk

The Garraty Company has two bond issues outstanding. Both bonds pay $100 annual interest plus $1,000 at maturity. Bond L has a maturity of 15 years, and Bond S has a maturity of 1 year.

 

  1.  
    1. What will be the value of each of these bonds when the going rate of interest is 4%? Assume that there is only one more interest payment to be made on Bond S. Round your answers to the nearest cent.
      Bond L $
      Bond S $


    2. What will be the value of each of these bonds when the going rate of interest is 7%? Assume that there is only one more interest payment to be made on Bond S. Round your answers to the nearest cent.
      Bond L _______$
      Bond S ________$


    3. What will be the value of each of these bonds when the going rate of interest is 13%? Assume that there is only one more interest payment to be made on Bond S. Round your answers to the nearest cent.
      Bond L _______$
      Bond S _______$


  2. Why does the longer-term (15-year) bond fluctuate more when interest rates change than does the shorter-term bond (1 year)?
    I. Longer-term bonds have more interest rate risk than shorter-term bonds.
    II. Shorter-term bonds have more interest rate risk than longer-term bonds.
    III. Longer-term bonds have more reinvestment rate risk than shorter-term bonds.
    -Select-IIIIIIItem 7

 

 

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