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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
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 12 years, while Bond S matures in 1 year.
- 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 Bond S at its maturity and that 12 more payments are to be made on Bond L. Round your answers to the nearest cent.
5% 6% 11% Bond L $ $ $ Bond S $ $ $ - Why does the longer-term bonds price vary more than the price of the shorter-term bond when interest rates change?
- The change in price due to a change in the required rate of return decreases as a bond's maturity increases.
- Long-term bonds have lower interest rate risk than do short-term bonds.
- Long-term bonds have lower reinvestment rate risk than do short-term bonds.
- The change in price due to a change in the required rate of return increases as a bond's maturity decreases.
- Long-term bonds have greater interest rate risk than do short-term bonds.
-Select-IIIIIIIVV
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