An investor has two bonds in his portfolio that both have a face value of $1,000 and pay a 8% annual coupon. Bond L matures in 12 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 12 more payments are to be made on Bond L.
a) What will the value of the Bond L be if the going interest rate is 6%?
b) What will the value of the Bond S be if the going interest rate is 6%?
c) What will the value of the Bond L be if the going interest rate is 9%?
d) What will the value of the Bond S be if the going interest rate is 9%?
e) What will the value of the Bond L be if the going interest rate is 14%?
f) What will the value of the Bond S be if the going interest rate is 14%?