In: Finance

An investor has two bonds in his portfolio that have a face value of $1,000 and pay a 8% 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.

- What will the value of the Bond L be if the going interest rate
is 6%? Round your answer to the nearest cent.

$

What will the value of the Bond S be if the going interest rate is 6%? Round your answer to the nearest cent.

$

What will the value of the Bond L be if the going interest rate is 8%? Round your answer to the nearest cent.

$

What will the value of the Bond S be if the going interest rate is 8%? 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.

$

Bond S

K = N |

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k] + Par value/(1 + YTM)^N |

k=1 |

K =1 |

Bond Price =∑ [(8*1000/100)/(1 + 6/100)^k] + 1000/(1 + 6/100)^1 |

k=1 |

Bond Price = 1018.87 |

Bond L

K = N |

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k] + Par value/(1 + YTM)^N |

k=1 |

K =10 |

Bond Price =∑ [(8*1000/100)/(1 + 6/100)^k] + 1000/(1 + 6/100)^10 |

k=1 |

Bond Price = 1147.2 |

Bond S

K = N |

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k] + Par value/(1 + YTM)^N |

k=1 |

K =1 |

Bond Price =∑ [(8*1000/100)/(1 + 8/100)^k] + 1000/(1 + 8/100)^1 |

k=1 |

Bond Price = 1000 |

Bond L

K = N |

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k] + Par value/(1 + YTM)^N |

k=1 |

K =10 |

Bond Price =∑ [(8*1000/100)/(1 + 8/100)^k] + 1000/(1 + 8/100)^10 |

k=1 |

Bond Price = 1000 |

Bond S

K = N |

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k] + Par value/(1 + YTM)^N |

k=1 |

K =1 |

Bond Price =∑ [(8*1000/100)/(1 + 14/100)^k] + 1000/(1 + 14/100)^1 |

k=1 |

Bond Price = 947.37 |

Bond L

K = N |

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k] + Par value/(1 + YTM)^N |

k=1 |

K =10 |

Bond Price =∑ [(8*1000/100)/(1 + 14/100)^k] + 1000/(1 + 14/100)^10 |

k=1 |

Bond Price = 687.03 |

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