What will the value of the Bond S be if the going interest rate is 8%? Round your answer to the nearest cent. $4 What will the value of the BondL be if the going interest rate is 11%? Round your answer to the nearest cent. 24 What will the value of the Bond S be if the going interest rate is 11%? Round your answer to the nearest cent. 24
What will the value of the Bond S be if the going interest rate is 8%? Round your answer to the nearest cent. $4 What will the value of the BondL be if the going interest rate is 11%? Round your answer to the nearest cent. 24 What will the value of the Bond S be if the going interest rate is 11%? Round your answer to the nearest cent. 24
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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Question
An investor had two bonds in his portfolio that have a face value of $1,000 & pays a 7% annual coupon. Bond L matures in 20 years, while bond S matures in 1 year. See the attachment for the problems to solve.
Transcribed Image Text:**Bond Valuation and Interest Rate Impact**
1. **Bond Value Calculations:**
- **What will the value of Bond S be if the going interest rate is 8%?**
Round your answer to the nearest cent.
$ ________
- **What will the value of Bond L be if the going interest rate is 11%?**
Round your answer to the nearest cent.
$ ________
- **What will the value of Bond S be if the going interest rate is 11%?**
Round your answer to the nearest cent.
$ ________
2. **Interest Rate Effects on Bond Prices:**
**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 interest rate risk than do short-term bonds.
- II. Long-term bonds have lower reinvestment rate risk than do short-term bonds.
- III. The change in price due to a change in the required rate of return increases as a bond's maturity decreases.
- IV. Long-term bonds have greater interest rate risk than do short-term bonds.
- V. The change in price due to a change in the required rate of return decreases as a bond's maturity increases.
**Explanation:**
This section examines how different interest rates affect the valuation of bonds and explores why longer-term bonds tend to exhibit more significant price fluctuations compared to shorter-term bonds when interest rates change.
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