Problem 5 09 Bond Valuation and Interest Rate Risk The Garraty Company has two bond issues outstanding Both bonds pay $100 annual interest plus $1,000 at maturity Bond L has a maturity of 15 years, and Bond S has a maturity of 1 year What will be the value of each of these bonds when the going rate of interest is 5 Assume that there is only one more interest payment to be made on Bond S Round your answers to the nearest cent Bond L $ Bond S $ What will be the value of each of these bonds when the going rate of interest is 8 Assume that there is only one more interest payment to be made on Bond S Round your answers to the nearest cent Bond L $ Bond S $ What will be the value of each of these bonds when the going rate of interest is 11 Assume that there is only one more interest payment to be made on Bond S Round your answers to the nearest cent Bond L $ Bond S $ Why does the longer term (15 year) bond fluctuate more when interest rates change than does the shorter term bond (1 year) I Shorter term bonds have more interest rate risk than longer term bonds II Longer term bonds have more interest rate risk than shorter term bonds III Longer term bonds have more reinvestment rate risk than shorter term bonds Select IIIIIIItem 7

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Problem 5-09 Bond Valuation and Interest Rate Risk The Garraty Company has two bond issues outstanding. Both bonds pay $100 annual interest plus $1,000 at

Problem 5-09 Bond Valuation and Interest Rate Risk

The Garraty Company has two bond issues outstanding. Both bonds pay $100 annual interest plus $1,000 at maturity. Bond L has a maturity of 15 years, and Bond S has a maturity of 1 year.

What will be the value of each of these bonds when the going rate of interest is 5%? Assume that there is only one more interest payment to be made on Bond S. Round your answers to the nearest cent.

Bond L	$
Bond S	$

What will be the value of each of these bonds when the going rate of interest is 8%? Assume that there is only one more interest payment to be made on Bond S. Round your answers to the nearest cent.

Bond L	$
Bond S	$

What will be the value of each of these bonds when the going rate of interest is 11%? Assume that there is only one more interest payment to be made on Bond S. Round your answers to the nearest cent.

Bond L	$
Bond S	$

Why does the longer-term (15-year) bond fluctuate more when interest rates change than does the shorter-term bond (1 year)? I. Shorter-term bonds have more interest rate risk than longer-term bonds. II. Longer-term bonds have more interest rate risk than shorter-term bonds. III. Longer-term bonds have more reinvestment rate risk than shorter-term bonds. -Select-IIIIIIItem 7