please see attachment for the curveAssume your instructor has two bonds in his portfolio. Both have face values of $1,000 and pay a 10% annual coupon rate. Bond L (longer maturity) matures in 15 years and Bond S (shorter maturity) matures in 1 year

• What will the value of each bond be if the market interest rate for similarly rated and maturing bonds is 5%, 8%, and 12%?
• Why does the longer-term bond?s price (Bond L) vary more than the price of the shorter-term bond (Bond S) when market interest rates change?

Locate the yield curve chart in The Wall Street Journal. Describe the shape of the yield curve. Do not attach the yield curve to your posting, but simply describe its shapeIncludeyouranswersinthebodyoftheposting,notasattachments \fThe solution to Bond L at 5% is shown below with the help of this online non zero bond price calculation tool http://finance.thinkanddone.com/online-n%u2026 . Since the output is verbose and the Yahoo editor only permits a certain number of letters in answers the remaining answers are given by using this online non zero bond price calculator http://finance.thinkanddone.com/online-n%u2026 An investor has two bonds in his portfolio that has a face value of $1000 and pay 10% annual coupon. Bond L matures in 15 year, what will the value of bond be if the going interest rate is 5% Compounding = annually Par Value = 1000 Coupon Rate = 0.1 Market Rate = 0.05 N = 15 Non Zero Bond Price Formula Coupon Rate x Par Value x PVIFA(ytm%, n) + Par Value x PVIF(ytm%, n) PVIFA Formula PVIFA(ytm%, n) = [1 - v] / ytm% v = 1 / (1 + ytm%)^n PVIFA(ytm%, n) = [1 - { 1 / (1 + ytm%)^n }] / ytm% PVIFA Calculation v = 1 / (1+0.05)^15 v = 0.48101709809097 PVIFA(0.05, 15) = [1 - 0.48101709809097] / 0.05 PVIFA(0.05, 15) = 0.51898290190903 / 0.05 PVIFA(0.05, 15) = 10.379658038181 PVIF Formula PVIF(ytm%, n) = 1 / (1 + ytm%)^n PVIF Calculation PVIF(0.05, 15) = 1 / (1+0.05)^15 PVIF(0.05, 15) = 1 / 2.0789281794114 PVIF(0.05, 15) = 0.48101709809097 Non Zero Bond Price Calculation Price = 0.1 x 1000 x 10.379658038181 + 1000 x 0.48101709809097 Price = 1037.9658038181 + 481.01709809097 Price = 1518.98 An investor has two bonds in his portfolio that has a face value of $1000 and pay 10% annual coupon. Bond L matures in 15 year, what will the value of bond be if the going interest rate is 5% $1518.98 what will the value of bond be if the going interest rate is 8% $1171.19 what will the value of bond be if the going interest rate is 12% $863.78 An investor has two bonds in his portfolio that has a face value of $1000 and pay 10% annual coupon. Bond S matures in 1 year, what will the value of bond be if the going interest rate is 5% $1047.62 what will the value of bond be if the going interest rate is 8% $1018.52 what will the value of bond be if the going interest rate is 12% $982.14 b. why does the longer-term bond's price vary more than the price of the shorter term bond when interest rate change. There is only one interest payment for Bond S and it's par value is discounted only by one year where as there are 15 interest payments for Bond L and it's par value is discounted by 15 years