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)?
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?
Value of bonds and rate of return for stocks is found in a Word attachment.