7-5 BOND VALUATION An investor has two bonds in his portfolio that have a face value of $1,000 and pay an 11% annual coupon. Bond L matures in 12 years, while Bond S matures in 1 year. a. What will...

7-5<br>BOND VALUATION An investor has two bonds in his portfolio that have a face value of<br>$1,000 and pay an 11% annual coupon. Bond L matures in 12 years, while Bond S matures<br>in 1 year.<br>a. What will the value of each bond be if the going interest rate is 6%, 8%, and 12%?<br>Assume that only one more interest payment is to be made on Bond S at its maturity<br>and that 12 more payments are to be made on Bond L.<br>b. Why does the longer-term bond's price vary more than the price of the shorter-term<br>bond when interest rates change?<br>

Extracted text: 7-5 BOND VALUATION An investor has two bonds in his portfolio that have a face value of $1,000 and pay an 11% annual coupon. Bond L matures in 12 years, while Bond S matures in 1 year. a. What will the value of each bond be if the going interest rate is 6%, 8%, and 12%? Assume that only one more interest payment is to be made on Bond S at its maturity and that 12 more payments are to be made on Bond L. b. Why does the longer-term bond's price vary more than the price of the shorter-term bond when interest rates change?

Jun 11, 2022

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7-5 BOND VALUATION An investor has two bonds in his portfolio that have a face value of $1,000 and pay an 11% annual coupon. Bond L matures in 12 years, while Bond S matures in 1 year. a. What will...

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