[Get Answer ]-Financial Management 35

Question Description

Bond Evaluation: An investor has two bonds in his portfoliothat have a face value of $1,000 and pays a 10% annual coupon. Bond L maturesin 15 years, while bond s matures in 1 year.

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1. What will the value of each bond be if the goinginterest rate is 5%, 8% and 12%? Assume that only one more interest payment isto be made on bond S at its maturity and that 15 more interest payment is to bemade to bond L?

2. Why does the longer-term bond’s price vary morethan the price of the shorter-term bond when interest rates change?

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