Illustrate what will be the value of each bond be if the, Ask an Expert

Management Studies

Q. An investor has two bonds in his portfolio that have a face value of $1000 and pay a 10% annual coupon. Bond L matures in 15 years and Bond S matures in 1 year.

a. Illustrate what will be 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 S at its maturity and that 15 more payments are to be made on Bond L.

b. Explain why does the longer-term bond's price vary more than the price of the shorter-term bond when interest rates change?

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Business Management, Management Studies

Category:- Business Management
Reference No.:- M9391430

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