The Garraty Company has two bond issues outstanding. Both bonds pay $100 annual interest plus...
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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 6%? Assume that there is only one more interest payment to be made on Bond S. Do not round intermediate calculations. 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 9%? Assume that there is only one more interest payment to be made on Bond S. Do not round intermediate calculations. 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. Do not round intermediate calculations. 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. Longer-term bonds have less reinvestment rate risk than shorter-term bonds. II. Longer-term bonds have more interest rate risk than shorter-term bonds. III. Longer-term bonds have less interest rate risk than shorter-term bonds.
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