4-9 The Garraty Company has two bonds 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.
Intermediate Financial Management: 10th ed. By Eugene F. Brigham, Philip R. Daves
4-9 The Garraty Company has two bonds 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)?
