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. 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 $   What will be the value of each of these bonds when the going rate of interest is 8%? 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 $   What will be the value of each of these bonds when the going rate of interest is 12%? 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 $

Essentials Of Investments
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Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Chapter1: Investments: Background And Issues
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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.

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

$

 

What will be the value of each of these bonds when the going rate of interest is 8%? 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

$

 

What will be the value of each of these bonds when the going rate of interest is 12%? 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

$

 

Why does the longer-term (15-year) bond fluctuate more when interest rates change than does the shorter-term bond (1 year)?
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- I II III Item 7

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