An investor has two boods in his portfolio that have a face value of $1,000 and pay a 12% annual coupon. Bond L matures in 10 years, while Bond 5 matures in 1 year, Assume that only one more interest payment is to be made on Bond S at its maturity and that 10 more payments are to be made on Bond L a. What will the value of the Bond L be if the going interest rate is 6%67 Round your answer to the nearest cent. $ 1441.61 What will the value of the Blond 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 I $ What will the value of the Bond 5 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 12%? Round your answer to the nearest cent. What will the value of the Bond S be if the going interest rate is 12%7 Round your answer to the nearest cent. S b. Why does the longer-term bond's price vary more than the price of the shorter-term bond when interest rates change? 1. Long-term bonds have lower reinvestment rate risk than do short-term bonds. 11. The change in price due to a change in the required rate of return increases as a bond's maturity decreases. 111. Long-term bonds have greater interest rate risk than do short-term bonds. IV. The change in price due to a change in the required rate of return decreases as a bond's maturity increases. V. Long-term bonds have lower interest rate risk than do short-term bonds.
An investor has two boods in his portfolio that have a face value of $1,000 and pay a 12% annual coupon. Bond L matures in 10 years, while Bond 5 matures in 1 year, Assume that only one more interest payment is to be made on Bond S at its maturity and that 10 more payments are to be made on Bond L a. What will the value of the Bond L be if the going interest rate is 6%67 Round your answer to the nearest cent. $ 1441.61 What will the value of the Blond 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 I $ What will the value of the Bond 5 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 12%? Round your answer to the nearest cent. What will the value of the Bond S be if the going interest rate is 12%7 Round your answer to the nearest cent. S b. Why does the longer-term bond's price vary more than the price of the shorter-term bond when interest rates change? 1. Long-term bonds have lower reinvestment rate risk than do short-term bonds. 11. The change in price due to a change in the required rate of return increases as a bond's maturity decreases. 111. Long-term bonds have greater interest rate risk than do short-term bonds. IV. The change in price due to a change in the required rate of return decreases as a bond's maturity increases. V. Long-term bonds have lower interest rate risk than do short-term bonds.
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter4: Bond Valuation
Section: Chapter Questions
Problem 8MC: Suppose a 10-year, 10% semiannual coupon bond with a par value of 1,000 is currently selling for...
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Transcribed Image Text:An investor has two boods in his portfolio that have a face value of $1,000 and pay a 12% annual coupon. Bond L matures in 10 years, while Bond 5 matures in 1 year,
Assume that only one more interest payment is to be made on Bond S at its maturity and that 10 more payments are to be made on Bond L
a. What will the value of the Bond L be if the going interest rate is 6%67 Round your answer to the nearest cent.
$
1441.61
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 5 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 12%? Round your answer to the nearest cent.
$
What will the value of the Bond S be if the going interest rate is 12%? Round your answer to the nearest cent.
b. Why does the longer-term bond's price vary more than the price of the shorter-term bond when interest rates change?
1. Long-term bonds have lower reinvestment rate risk than do short-term bonds.
II. The change in price due to a change in the required rate of return increases as a bond's maturity decreases.
III. Long-term bonds have greater interest rate risk than do short-term bonds.
IV. The change in price due to a change in the required rate of return decreases as a bond's maturity increases.
V. Long-term bonds have lower interest rate risk than do short-term bonds.
1
B
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