bond valuation
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Bond valuation
The Garraty Company has two bond issues outstanding. Both bonds pay $100 annual interest plus $1,000 at maturity. Bondf L has a maturity of 15 years, and Bond S a maturity of 1 year.
a. What will the value of each of these bonds when the going rate of interest is (1) 5 percent, (2) 8 percent, and (3) 12 percent? Assume that there is only one more interest payment to be made on Bond S.
b. Why does the longerterm (15 year) bond fluctuate more when interest rates change than does the shorterterm bond (1 year)?
Preferred stock evaluation
Fee Founders has preferred stock outstanding that pays a dividend of $5 at the end of each year. The preferred stock sells for $60 a share. What is the preferred stock's required rate of return?
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