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. What will be the value of each of these bonds when the going rate of interest is: (1) 5%, (2) 8%, and (3) 12%?

bond which matures in one year:

At 5 %     $  1,047.62

At 8%$   1,018.52

At 12%$     982.14

bonds which matures in 15-years:

At 5 %     $1,518.9829

At 8%$1,171.1896

At 12%$863.7827

Explanation:

The bonds value will be the discounted value of the coupon payment and the maturity at the given rates:

C100.000

time1

rate0.05

PV$95.2381

Maturity   1,000.00

time   1.00

rate  0.05

PV   952.38

PV c$95.2381

PV m  $952.3810

Total$1,047.6190

at 8%

PV$92.5926

PV   925.93

Total$1,018.5185

at 12%

PV$89.2857

PV   892.86

Total$982.1429

if the bon matures in 15 years_

at 5%

PV$1,037.9658

PV   481.02

Total$1,518.9829

at 8%

PV$855.9479

PV   315.24

Total$1,171.1896

at 12%

PV$681.0864

PV   182.70

Total$863.7827

reducing the scale of the market for a new product.