(Bond

relationship)

Mason, Inc. has two bond issues outstanding, called Series A and Series B, both paying the same annual interest of

$110110.

Series A has a maturity of

1212

years, whereas Series B has a maturity of

11

year.

a. What would be the value of each of these bonds when the going interest rate is (1)

44

percent, (2)

99

percent, and (3)

1313

percent? Assume that there is only one more interest payment to be made on the Series B bonds.

b. Why does the longer-term

(1212-year)

bond fluctuate more when interest rates change than does the shorter-term

(11-year)

bond?