INTERMEDIATE FINANCIAL MGMT.-W/MINDTAP

14th Edition

ISBN: 9780357533598

Author: Brigham

Publisher: CENGAGE L

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Textbook Question

Chapter 4, Problem 9P

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.

a. What will be the value of each of these bonds when the going rate of interest is (1) 5%, (2) 8%, and (3) 12%? Assume that there is only one more interest payment to be made on Bond S.
b. Why does the longer-term (15-year) bond fluctuate more when interest rates change than does the shorter-term bond (1 year)?

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Chapter 4, Problem 8P

Chapter 4, Problem 10P

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Chapter 4 Solutions

INTERMEDIATE FINANCIAL MGMT.-W/MINDTAP

Ch. 4 - Short-term interest rates are more volatile than...Ch. 4 - The rate of return on a bond held to its maturity...Ch. 4 - If you buy a callable bond and interest rates...Ch. 4 - A sinking fund can be set up in one of two ways....Ch. 4 - Prob. 1P Ch. 4 - Prob. 2P Ch. 4 - Current Yield for Annual Payments Heath Food...Ch. 4 - Determinant of Interest Rates The real risk-free...Ch. 4 - Default Risk Premium A Treasury bond that matures...Ch. 4 - Prob. 6P

Ch. 4 - Bond Valuation with Semiannual Payments Renfro...Ch. 4 - Prob. 8P Ch. 4 - Bond Valuation and Interest Rate Risk The Garraty...Ch. 4 - Prob. 10P Ch. 4 - Prob. 11P Ch. 4 - Bond Yields and Rates of Return A 10-year, 12%...Ch. 4 - Yield to Maturity and Current Yield You just...Ch. 4 - Current Yield with Semiannual Payments A bond that...Ch. 4 - Prob. 15P Ch. 4 - Interest Rate Sensitivity A bond trader purchased...Ch. 4 - Bond Value as Maturity Approaches An investor has...Ch. 4 - Prob. 18P Ch. 4 - Prob. 19P Ch. 4 - Prob. 20P Ch. 4 - Bond Valuation and Changes in Maturity and...Ch. 4 - Yield to Maturity and Yield to Call Arnot...Ch. 4 - Prob. 23P Ch. 4 - Prob. 1MC Ch. 4 - Prob. 2MC Ch. 4 - How does one determine the value of any asset...Ch. 4 - Prob. 4MC Ch. 4 - What would be the value of the bond described in...Ch. 4 - Suppose a 10-year, 10% semiannual coupon bond with...Ch. 4 - Prob. 9MC Ch. 4 - Prob. 10MC Ch. 4 - Prob. 11MC Ch. 4 - Prob. 12MC Ch. 4 - Prob. 14MC Ch. 4 - Prob. 15MC Ch. 4 - Prob. 16MC Ch. 4 - Prob. 17MC

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Solution Summary: The author explains how the longer-term bond fluctuates more if interest rate change than does the shorter term bond. The 1-year bond value will fluctuate more due to the variance in the timing of receipts.

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Chapter 4 Solutions