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An investor has two bonds in his portfolio that have a face value of $1,000 and pay an 11% annual coupon. Bond L matures in
An investor has two bonds in his portfolio that have a face value of $1,000 and pay an 11% annual coupon. Bond L matures in 12 years, while Bond S matures in 1 year. Assume both bonds are annual coupon bonds. a) What will the value of each bond be if the interest rate is 6%, 9%, and 12%? 2 b) What do you conclude about the relationship between time to maturity and the sensitivity of bond prices to interest rates?
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