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Problem Walk$-$Through

n investor has two bonds in his portfolio that have a face value of $$1,000$ and pay a $9\%$ annual coupon. Bond $L$ matures in $11$ years, while Bond $S$ matures in $1$ year. your answers to the nearest cent.

Why does the longer$-$term bond's price vary more than the price of the shorter$-$term bond when interest rates change?

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

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

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

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

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