Moonlight, Inc. has issued two types of bonds. A1 and A2 . Both of them is paying annual interst of110$. Maturity of A1 is12 years. Maturity of A2 is1 year.

a. Find the value A1 and A2 when the market interest rate is (1) 7 percent, (2) 9 percent, and (3) 15percent? Assume that there is only one more interest payment to be made on the A2 bonds.

b. Why does the (12-year) bond fluctuate more when interest rates change than does the(1-year) bond?

a. When market rate is7 percent, the value of A1 bonds would be $ nothing. (Round to the nearest cent.)

When market rate is 9 percent, the value of A1 bonds would be $ nothing.(Round to the nearest cent.)

When the market rate is 15 percent, the value of A1 bonds would be $ nothing.(Round to the nearest cent.)

When the market rate is 7 percent, the value of Series A2 bonds would be $ nothing. (Round to the nearest cent.)

When the market rate is 9 percent, the value of Series A2 bonds would be $ nothing.(Round to the nearest cent.)

When the market rate is 15 percent, the value of Series A2 bonds would be $ nothing.(Round to the nearest cent.)

b. Why does the (12-year) bond fluctuate more when interest rates change than does the (1 -year) bond?(Select the best choice below.)

A. Because longer-term bondholders are locked into a particular interest rate for a longer period of time and are therefore exposed to less interest rate risk.

B. Because longer-term bondholders are locked into a particular interest rate for a longer period of time but are not exposed to any interest rate risk.

C. Because longer-term bondholders are locked into a particular interest rate for a longer period of time and are therefore exposed to more interest rate risk.

D. Because longer-term bondholders are locked into a particular interest rate for a longer period of time but are exposed to same interest rate risk as short-term bondholders.