BOND VALUATION An investor has two bonds in his portfolio that have a face value of $1,000 and pay a 6% annual coupon. Bond L matures in 16 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 16 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. $ 2.What will the value of the Bond S be if the going interest rate is 6%? Round your answer to the nearest cent. $ 3.What will the value of the Bond L be if the going interest rate is 8%? Round your answer to the nearest cent. $ 4.What will the value of the Bond S be if the going interest rate is 8%? Round your answer to the nearest cent. $ 5.What will the value of the Bond L be if the going interest rate is 11%? Round your answer to the nearest cent. $ 6.What will the value of the Bond S be if the going interest rate is 11%? Round your answer to the nearest cent. $

B.Why does the longer-term bonds price vary more than the price of the shorter-term bond when interest rates change?

I. The change in price due to a change in the required rate of return increases as a bond's maturity decreases.

II. Long-term bonds have greater interest rate risk than do short-term bonds.

III. The change in price due to a change in the required rate of return decreases as a bond's maturity increases.

IV. Long-term bonds have lower interest rate risk than do short-term bonds.

V. Long-term bonds have lower reinvestment rate risk than do short-term bonds.