Question: Mason, Inc. has two bond issues outstanding, called Series A and Series B both paying the same annual interest of $55. Series A has a

Mason, Inc. has two bond issues outstanding, called Series A and Series B both paying the same annual interest of $55. Series A has a maturity of 12years, whereas Series B has a maturity of 1 year.

a. What would be the value of each of these bonds when the going interest rate is (1) 4 percent, (2) 7 percent, and (3) 10 percent? Assume that there is only one more interest payment to be made on the Series B bonds.

b. Why does the longer-term (12-year) bond fluctuate more when interest rates change than does the shorter-term (1-year) bond?

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