[Southernluv]

a. What will be the value of each of these bonds when the going rate of interest is (1) 5 percent, (2) 8 percent, and (3) 12 percent? Assume that there is only one more interest payment to be made on Bond S.

[Southernluv]

I manage to get the answers myself, here they are if anyone still needs them.
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 a maturity of 1 year.

a. What will be the value of each of these bonds when the going rate of interest is (1) 5 percent, (2) 8 percent, and (3) 12 percent? Assume that there is only one more interest payment to be made on Bond S.

5% Bond L = $1518.98 Bond S = $1047.62
8% Bond L = $1171.19 Bond S = $1018.52
12% Bond L = $863.78 Bond S = $982.14



b. Why does the longer-term (15-year) bond fluctuate more when interest rates change than does the shorter-term bond (1-year)?


The 15 year bond will fluctuate more because there are more things happen over a 15 year period as opposed to the time frame of 1 year.






8.4
Fee Founders has preferred stock outstanding that pays a dividend of $5 at the end of each year. The preferred stock sells for $60 a share. What is the preferred stock's required rate of return?

(5/60) = 8.33%