An investor has two bonds in his portfolio that both have a face value of $1,000

Question

An investor has two bonds in his portfolio that both have a face value of $1,000 and pay a 6% annual coupon. Bond L matures in 10 years, while Bond S matures in 1 year. Assume that only one more interest payment is to be made on Bond S at its maturity and that 10 more payments are to be made on Bond L. a. What will the value of the Bond L be if the going interest rate is 4%? Round your answer to the nearest cent. $ What will the value of the Bond S be if the going interest rate is 4%? Round your answer to the nearest cent. $ What will the value of the Bond L be if the going interest rate is 10%? Round your answer to the nearest cent. $ What will the value of the Bond S be if the going interest rate is 10%? Round your answer to the nearest cent. $ What will the value of the Bond L be if the going interest rate is 14%? Round your answer to the nearest cent. $ What will the value of the Bond S be if the going interest rate is 14%? Round your answer to the nearest cent. $

Explanation / Answer

What will the value of the Bond L be if the going interest rate is 5%?

80PVIFA(5%,18)+1000PVIF(5%,18)= $1612.006

What will the value of the Bond S be if the going interest rate is 5%?

80PVIFA(5%,1)+1000PVIF(5%,1)= $1028.57

What will the value of the Bond L be if the going interest rate is 9%?

80PVIFA(9%,18)+1000PVIF(9%,18)= $912.44

What will the value of the Bond S be if the going interest rate is 9%?

80PVIFA(9%,1)+1000PVIF(9%,1)= $990.83

What will the value of the Bond L be if the going interest rate is 14%?

80PVIFA(14%,18)+1000PVIF(14%,18)= $611.955

What will the value of the Bond S be if the going interest rate is 14%?

80PVIFA(14%,1)+1000PVIF(14%,1)= $947.368

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