Question
( Bond relationship ) Mason, Inc. has two bond issuesoutstanding, called Series A and SeriesB, both paying the same annual interest of $ 100 .
(Bond relationship) Mason, Inc. has two bond issuesoutstanding, called Series A and SeriesB, both paying the same annual interest of $100. Series A has a maturity of 12 years, whereas Series B has a maturity of 1 year.
a. What would be the value of each of these bonds when the going interest rate is(1) 4 percent, (2) 11 percent, and(3) 14 percent? Assume that there is only one more interest payment to be made on the Series B bonds.
b. Why does thelonger-term (12-year) bond fluctuate more when interest rates change than does theshorter-term (1-year) bond?
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