Question

7-5 BOND VALUATION An investor has two bonds in his portfolio that have a face value of $1,000 and pay an 11% annual coupon. Bond L matures in 12 years, while Bond S matures in 1 year. a. What will the value of each bond be if the going interest rate is 6%, 8%, and 12%? Assume that only one more interest payment is to be made on Bond S at its maturity and that 12 more payments are to be made on Bond L. b. Why does the longer-term bond's price vary more than the price of the shorter-term bond when interest rates change? L a li Rand and Rand 7 Fach

I am trying to do this problem but i am confused and need help understnading how to do it on a ti 84 calculator.

Answer 1

­SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

v 1 05-18 ENG 20-03-202017 HP1 . x fe HGHH HF HI HJ HK HL HM HN HO HP HQ HRHS HT HUA 12 BONDL YEARS COUPON FV BONDS YEARS COUPON 110 (1000 X 11%) 1000 110 [1000 X 11%] 1000 FV PRICE WHEN RATE = 6% PRICE WHEN RATE = 6% 12 1 N = 1/Y = PMT = FV= PRICE -110 -1000 1419.19 N = 1/Y = PMT = FV= PRICE -110 -1000 1047.17 CPT CPT PRICE WHEN RATE = PRICE WHEN RATE = 8% 12 N = 1/Y = PMT = FV= PRICE -110 -1000 1226.08 N = 1/Y = PMT = FV= PRICE 1 8 -110 -1000 1027.78 CPT CPT ... BOND Sheets Sheet4 PV FV choice EAR nper WACC Sheet1 Sheet2 Sheet3 Sheets HERO WACC AFN MISI ... :

@vu 1 05:19 ENG 20-03-202017 HP46 2 HF HG HH H HJ HKHL HM HN HOHP HQ HR HSH HUA PRICE WHEN RATE = 12% PRICE WHEN RATE = 12% 1 12 N = 1/Y = PMT = FV= PRICE 12 -110 -1000 938.06 N = 1/Y = PMT = FV= PRICE -110 -1000 991.07 CPT CPT b ANSWER Long-term bonds have greater interest rate risk than do short-term bonds. ... BOND Sheet6 Sheet4 PV FV choice EAR nper WACC Sheet1 Sheet2 Sheet3 Sheet5 HERO WACC AFN MISI ... :