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20 eBook Problem Walk-Through An investor has two bonds in his portfolio that have a face value of $1,000 and pay a 10% annual coupon.

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20 eBook Problem Walk-Through An investor has two bonds in his portfolio that have a face value of $1,000 and pay a 10% annual coupon. Bond L. matures in 16 years, while Bond S matures in 1 Year a. What will the value of the Bond L be if the going interest rate is 5%, 6%, and 11%? Assume that only one more interest payment is to be made on Bonds at its maturity and that 16 more payments are to be made on Bond L. Round your answers to the nearest cent. 5% Bond L $ $ $ Bond S $ $ b. Why does the longer-term bond's price vary more than the price of the shorter-term bond when interest rates change? 1. The change in price due to a change in the required rate of return decreases as a bond's maturity increases II. Long-term bonds have lower interest rate risk than do short-term bonds. III. Long-term bonds have lower reinvestment rate risk than do short-term bonds. IV. The change in price due to a change in the required rate of return increases as a bond's maturity decreases V. Long term bonds have greater interest rate risk than do short-term bonds

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