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An investor has two bonds in his portfolio that have a face value of $ 1 , 0 0 0 and pay an 1 1
An investor has two bonds in his portfolio that have a face value of $ and pay an annual coupon. Bond matures in years, while Bond matures in year.
a What will the value of the Bond be if the going interest rate is and Assume that only one more interest payment is to be made on Bond at its maturity and that more payments are to be made on Bond L Round your answers to the nearest cent.
b Why does the longerterm bond's price vary more than the price of the shorterterm bond when interest rates change?
I. Longterm bonds have lower reinvestment rate risk than do shortterm bonds.
II The change in price due to a change in the required rate of return increases as a bond's maturity decreases.
III. Longterm bonds have greater interest rate risk than do shortterm bonds.
IV The change in price due to a change in the required rate of return decreases as a bond's maturity increases.
V Longterm bonds have lower interest rate risk than do shortterm bonds.
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