An investor has two bonds in his portfolio that have a face value of $1000 and pay a 10% annual coupon. Bond L matures in 15 years, while bond S matures in 1 year.
a. What will the value of each bond be if the going interest rate is 5%, 8%, and 12%? Assume that only one more interest payment is to be made on Bond S at its maturity and that 15 more payments are to be made on Bond L.
Step by step solutions to the problems are provided.