Explore BrainMass

# Bond values

Not what you're looking for? Search our solutions OR ask your own Custom question.

This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

The Heymann company's bonds have 4 years remaining to maturity. Interest is paid annually; the bonds have a \$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 %, and (3) 12 %. 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 bonds (1 year)?

#### Solution Preview

Formulas

S bond
\$1000 = (1 + interest/100)*(initial value)
initial value = \$1000/(1 + interest/100)

L bond
Year1 = (1 + interest/100)*(initial value)

Year2 = (1 + interest/100)*Year1 = (1 + ...

#### Solution Summary

This is a pair of bond value questions.

\$2.49