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in investor has two bonds in his portfolio that have a face value of $1,000 and pay a 13% annual coupon. Bond L matures in 10 years, while Bond S matures in 1 year. a. What will the value of the Bond L be if the going interest rate is 7%, 9%, and 14% ? 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. Round your answers to the nearest cent. 7% Bond L Bond S $ $ $ 9% 14% $ 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 greater interest rate risk than do short-term bonds. II. The change in price due to a change in the required rate of return decreases as a bond's maturity increases. III. Long-term bonds have lower interest rate risk than do short-term bonds. IV. Long-term bonds have lower reinvestment rate risk than do short-term bonds. V. The change in price due to a change in the required rate of return increases as a bond's maturity decreases.

in investor has two bonds in his portfolio that have a face value of $1,000 and pay a 13% annual coupon. Bond L matures in 10 years, while Bond S matures in 1 year. a. What will the value of the Bond L be if the going interest rate is 7%, 9%, and 14% ? 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. Round your answers to the nearest cent. 7% Bond L Bond S $ $ $ 9% 14% $ 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 greater interest rate risk than do short-term bonds. II. The change in price due to a change in the required rate of return decreases as a bond's maturity increases. III. Long-term bonds have lower interest rate risk than do short-term bonds. IV. Long-term bonds have lower reinvestment rate risk than do short-term bonds. V. The change in price due to a change in the required rate of return increases as a bond's maturity decreases.

Essentials Of Investments
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
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has two bonds in his portfolio that have a face value of $1,000 and pay a 13% annual coupon. Bond L matures in 10 years, while Bond S matures in 1 year. An investor a. What will the value of the Bond L be if the going interest rate is 7%, 9%, and 14%? 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. Round your answers to the nearest cent. 7% Bond L $ Bond S $ -Select- | == > > 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 greater interest rate risk than do short-term bonds. II. The change in price due to a change in the required rate of return decreases as a bond's maturity increases. III. Long-term bonds have lower interest rate risk than do short-term bonds. IV. Long-term bonds have lower reinvestment rate risk than do short-term bonds. V. The change in price due to a change in the required rate of return increases as a bond's maturity decreases. ||| $ $ IV 9% $ $ 14%
Transcribed Image Text:has two bonds in his portfolio that have a face value of $1,000 and pay a 13% annual coupon. Bond L matures in 10 years, while Bond S matures in 1 year. An investor a. What will the value of the Bond L be if the going interest rate is 7%, 9%, and 14%? 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. Round your answers to the nearest cent. 7% Bond L $ Bond S $ -Select- | == > > 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 greater interest rate risk than do short-term bonds. II. The change in price due to a change in the required rate of return decreases as a bond's maturity increases. III. Long-term bonds have lower interest rate risk than do short-term bonds. IV. Long-term bonds have lower reinvestment rate risk than do short-term bonds. V. The change in price due to a change in the required rate of return increases as a bond's maturity decreases. ||| $ $ IV 9% $ $ 14%
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