Log in
Finance
1
answer
0
watching
142
views

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.

  1. 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 $

  2. What will be the value of each of these bonds when the going rate of interest is 9%? 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 $

  3. 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 $

Watch
1
answer
0
watching
142
views

For unlimited access to Homework Help, a Homework+ subscription is required.

Elin Hessel
Elin HesselLv2
28 Sep 2019

Unlock all answers

Get 1 free homework help answer.
Already have an account? Log in
Share

Related questions

An investor has two bonds in his portfolio that both have a face value of $1,000 and pay a 7% annual coupon. Bond L matures in 13 years, while Bond S matures in 1 year. Assume that only one more interest payment is to be made on Bond S at its maturity and that 13 more payments are to be made on Bond L.

Assume that only one more interest payment is to be made on Bond S at its maturity and that 13 more payments are to be made on Bond L.

a. What will the value of the Bond L be if the going interest rate is 4%? Round your answer to the nearest cent.
$

What will the value of the Bond S be if the going interest rate is 4%? Round your answer to the nearest cent.
$

What will the value of the Bond L be if the going interest rate is 8%? Round your answer to the nearest cent.
$

What will the value of the Bond S be if the going interest rate is 8%? Round your answer to the nearest cent.
$

What will the value of the Bond L be if the going interest rate is 12%? Round your answer to the nearest cent.
$

What will the value of the Bond S be if the going interest rate is 12%? Round your answer to the nearest cent.
$

Why does the longer-term bond’s price vary more than the price of the shorter-term bond when interest rates change?

I. The change in price due to a change in the required rate of return increases as a bond's maturity decreases.

II. Long-term bonds have greater interest rate risk then do short-term bonds.

III. The change in price due to a change in the required rate of return decreases as a bond's maturity increases.

IV. Long-term bonds have lower interest rate risk then do short-term bonds.

V. Long-term bonds have lower reinvestment rate risk then do short-term bonds

Bond valuation

An investor has two bonds in his portfolio that both have a face value of $1,000 and pay a 8% annual coupon. Bond L matures in 19 years, while Bond S matures in 1 year.

Assume that only one more interest payment is to be made on Bond S at its maturity and that 19 more payments are to be made on Bond L.

What will the value of the Bond L be if the going interest rate is 5%? Round your answer to the nearest cent.
$

What will the value of the Bond S be if the going interest rate is 5%? Round your answer to the nearest cent.
$

What will the value of the Bond L be if the going interest rate is 9%? Round your answer to the nearest cent.
$

What will the value of the Bond S be if the going interest rate is 9%? Round your answer to the nearest cent.
$

What will the value of the Bond L be if the going interest rate is 14%? Round your answer to the nearest cent.
$

What will the value of the Bond S be if the going interest rate is 14%? Round your answer to the nearest cent.
$

Why does the longer-term bond’s price vary more than the price of the shorter-term bond when interest rates change?

The change in price due to a change in the required rate of return decreases as a bond's maturity increases.

Long-term bonds have lower interest rate risk then do short-term bonds.

Long-term bonds have lower reinvestment rate risk then do short-term bonds.

The change in price due to a change in the required rate of return increases as a bond's maturity decreases.

Long-term bonds have greater interest rate risk then do short-term bonds.

The Garraty Company has two bond issues outstanding. Both bonds pay $100 annual interest plus $1000 at maturity. Bond L has a maturity of 15 years, and Bond S has 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)?

Weekly leaderboard

Home
Homework Help 3,900,000
Finance 370,000
Start filling in the gaps now
Log in