The Desreumaux Company has two bond issues outstanding. Both bonds pay $100 annual interest plus $1,000 at

Question:

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)?

Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...