An investor has two bonds in his portfolio that have a face value of $1,000 and pay a 7% annual coupon. Bond L matures in 20 years, while Bond S matures in 1 year. Assume that only one more interest payment is to be made on Bond S at its maturity and that 20 more payments are to be made on Bond L.

a. What will the value of the Bond L be if the going interest rate is 6%? Round your answer to the nearest cent.

b . What will the value of the Bond S be if the going interest rate is 6%? Round your answer to the nearest cent.

c. What will the value of the Bond L be if the going interest rate is 10%? Round your answer to the nearest cent.

d. What will the value of the Bond S be if the going interest rate is 10%? Round your answer to the nearest cent.

e. What will the value of the Bond L be if the going interest rate is 14%? Round your answer to the nearest cent.

f. What will the value of the Bond S be if the going interest rate is 14%? Round your answer to the nearest cent.

g. Why does the longer-term bond's price vary more than the price of the shorter-term bond when interest rates change? [multiple choice]

I. The change in price due to a change in the required rate of return increases as a bond's maturity decreases.

II. Long-term bonds have greater interest rate risk than do short-term bonds.

III. The change in price due to a change in the required rate of return decreases as a bond's maturity increases.

IV. Long-term bonds have lower interest rate risk than do short-term bonds.

V. Long-term bonds have lower reinvestment rate risk than do short-term bonds.