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 15 years, while Bond 5 matures in 1 year. a. What will the value of the Bond L be if the going interest rate is 6%, 8%, and 13% ? Assume that only one more interest payment is to be made on Bond S at its maturity and that 15 more payments are to be made on Bond L. Round your answers to the nearest cent. 6% 8% Bond L $ Bond S $ $ $ -Select- $ $ 13% b. Why does the longer-term bond's price vary more than the price of the shorter-term bond when interest rates change? I. 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.
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 15 years, while Bond 5 matures in 1 year. a. What will the value of the Bond L be if the going interest rate is 6%, 8%, and 13% ? Assume that only one more interest payment is to be made on Bond S at its maturity and that 15 more payments are to be made on Bond L. Round your answers to the nearest cent. 6% 8% Bond L $ Bond S $ $ $ -Select- $ $ 13% b. Why does the longer-term bond's price vary more than the price of the shorter-term bond when interest rates change? I. 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.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text: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 15 years, while Bond S matures in 1 year.
a. What will the value of the Bond L be if the going interest rate is 6%, 8%, and 13% ? Assume that only one more interest payment is to be made on Bond S at its maturity
and that 15 more payments are to be made on Bond L. Round your answers to the nearest cent.
6%
Bond L
$
Bond S $
$
$
-Select-
8%
$
$
13%
b. Why does the longer-term bond's price vary more than the price of the shorter-term bond when interest rates change?
I. 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.
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