P(5-7): Renfro Rentals has issued bonds that have a 10% coupon rate, payable semiannually. The bonds mature in 8 years, have a face value of $1,000, and a yield to maturity of 8.5%. What is the price of the bonds?
P(5-9): The Garraty 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 1 year.
a. What will be the value of each of these bonds when the going rate of interest is (1) 5%,
(2) 8%, and (3) 12%? 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 (1 year)?
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