The Garraty Company has two bond issues outstanding. Both bonds pay $100 annual inter

AndersAA · #1 Feb 28, 2008, 05:33 PM

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

Clough · Feb 29, 2008, 02:02 AM

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