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29 Sep 2019
Exercise on Bond Valuation.
An investor has two bonds in her portfolio that have a face value of $1000 and pay a 10% annual coupon. Bond A matures in 15 years, while Bond B matures in 1 year.
What will the value of each bond be if the going interest rate is 5%, 8%, and 12%. ? Assume that only one more interest payment is to be made on Bond B at its maturity, and that 15 more payments are to be made on bond A.
Why does the longer-term bond price vary more than the price of the shorter-term bond when interest rates change ?
Please show your work solve problem in detail.
Exercise on Bond Valuation.
An investor has two bonds in her portfolio that have a face value of $1000 and pay a 10% annual coupon. Bond A matures in 15 years, while Bond B matures in 1 year.
What will the value of each bond be if the going interest rate is 5%, 8%, and 12%. ? Assume that only one more interest payment is to be made on Bond B at its maturity, and that 15 more payments are to be made on bond A.
Why does the longer-term bond price vary more than the price of the shorter-term bond when interest rates change ?
Please show your work solve problem in detail.
Jarrod RobelLv2
29 Sep 2019
