Question
Mason, Inc. has two bond issues outstanding, called Series A and Series B, both paying the same annual interest of $95. Series A has a
Mason, Inc. has two bond issues outstanding, called Series A and Series B, both paying the same annual interest of $95. Series A has a maturity of 12 years, whereas Series B has a maturity of 1 year.
3a_1. When the going interest rate is 5 percent, the value of Series A bonds would be $_______ (Round to the nearest cent.)
3a_2. When the going interest rate is 9 percent, the value of Series A bonds would be $_______ (Round to the nearest cent.)
3a_3. When the going interest rate is 12 percent, the value of Series A bonds would be $_______ (Round to the nearest cent.)
3b_1. When the going interest rate is 5 percent, the value of Series B bonds would be $_______ (Round to the nearest cent.)
3b_2. When the going interest rate is 9 percent, the value of Series B bonds would be $_______ (Round to the nearest cent.)
3b_3. When the going interest rate is 12 percent, the value of Series B bonds would be $_______ (Round to the nearest cent.)
3c. Why does the longer-term (12-year) bond fluctuate more when interest rates change than does the shorter-term (1-year) bond? (Select the best choice below.)
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