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  3. 3. problem 7.05 (bond valuation) an investor has t

3. Problem 7.05 (Bond Valuation) An investor has two bonds in his portfolio that have...

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Finance

3. Problem 7.05 (Bond Valuation)

An investor has two bonds in his portfolio that have a face value of $1,000 and pay a 12% annual coupon. Bond L matures in 20 years, while Bond S matures in 1 year.

  1. What will the value of the Bond L be if the going interest rate is 7%, 9%, and 13%? Assume that only one more interest payment is to be made on Bond S at its maturity and that 20 more payments are to be made on Bond L. Round your answers to the nearest cent.

    7% 9% 13%
    Bond L $ $ $
    Bond S $ $ $

  2. Why does the longer-term bonds price vary more than the price of the shorter-term bond when interest rates change?

    1. Long-term bonds have lower interest rate risk than do short-term bonds.
    2. Long-term bonds have lower reinvestment rate risk than do short-term bonds.
    3. The change in price due to a change in the required rate of return increases as a bond's maturity decreases.
    4. Long-term bonds have greater interest rate risk than do short-term bonds.
    5. The change in price due to a change in the required rate of return decreases as a bond's maturity increases.

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