1. The Select Company has two bond issues outstanding. Both bonds pay $100 annual interest plus...

1. The Select Company has two bond issues outstanding. Both bonds pay $100 annual interest plus $1,000 at maturity. Bond L-Series has a maturity of 15 years, and Bond S-Series 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%, (2) 8%, and (3) 12%? Assume that there is only one more interest payment to be made on Bond

b. Why does the longer-term (15-year) bond fluctuate more when interest rates change than does the shorter-term bond (1-year)?

2.SOP Ltd bonds have a par value of $1,000. The bonds pay semi-annual interest of $40 and mature in 5 years.

a. How much would you pay for SOP’s bond if your required rate of return is 10%?

b. How much would you pay if your rate of return is 8%?

3. SAH, Inc. has issued a 12% coupon rate bond that is to mature in nine years. The bond had a $1,000 par value, and interest is due to be paid semi-annually. If your required rate of return (yield to maturity) is 10%, what price would you be willing to pay for the bond?

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