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 19 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 19 more payments are to be made on Bond L.

1. What will the value of the Bond L be if the going interest rate is 6%? Round your answer to the nearest cent. $ 1446.23 What will the value of the Bond S be if the going interest rate is 6%? Round your answer to the nearest cent. $ 1037.74 What will the value of the Bond L be if the going interest rate is 8%? Round your answer to the nearest cent. $ ____(NOT 1089.50) What will the value of the Bond S be if the going interest rate is 8%? Round your answer to the nearest cent. $ 1009.17 What will the value of the Bond L be if the going interest rate is 13%? Round your answer to the nearest cent. $ _____(NOT 543.70) What will the value of the Bond S be if the going interest rate is 13%? Round your answer to the nearest cent. $ _____(NOT 924.37)
2. Why does the longer-term bonds price vary more than the price of the shorter-term bond when interest rates change?
   1. Long-term bonds have lower reinvestment rate risk than do short-term bonds.
   2. The change in price due to a change in the required rate of return increases as a bond's maturity decreases.
   3. Long-term bonds have greater interest rate risk than do short-term bonds.
   4. The change in price due to a change in the required rate of return decreases as a bond's maturity increases.
   5. Long-term bonds have lower interest rate risk than do short-term bonds.
   ANSWER-III