# Question: The Desreumaux Company has two bond issues outstanding Both bonds

The Desreumaux Company has two bond issues outstanding. Both bonds pay $100 annual interest plus $1,000 at maturity. Bond L has a maturity of 15 years and Bond S has a maturity of one year.

a. What will be the values of these bonds when the going rate of interest is (1) 5 percent, (2) 7 percent, and (3) 11 percent? Assume that there is only one more interest payment to be made on Bond S.

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

a. What will be the values of these bonds when the going rate of interest is (1) 5 percent, (2) 7 percent, and (3) 11 percent? Assume that there is only one more interest payment to be made on Bond S.

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

## Answer to relevant Questions

Your broker offers to sell you some shares of Wingler & Company common stock, which paid a dividend of $2 yesterday. You expect the dividend to grow at a rate of 5 percent per year into perpetuity. The appropriate rate of ...The Severn Company’s bonds have four years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 9 percent.a. Compute the yield to maturity for the bonds if ...Suppose that on January 2, 2014, the yield on AAA-rated corporate bonds were 5 percent; suppose also that one year later, the yield on these same bonds had climbed to about 6 percent because the Federal Reserve increased ...Explain why systematic risk is the relevant risk of an investment and why investors should be rewarded only for this type of risk.Suppose rRF = 9%, rM = 14%, and βX = 1.3.a. What is rX, the required rate of return on Stock X?b. Now suppose rRF (1) Increases to 10 percent (2) Decreases to 8 percent. The slope of the SML remains constant. How would each ...Post your question