Crawford Inc. has two bond issues outstanding both paying the same annual interest of $55 called Series A and Series B. Series A has a maturity of 12 years
whereas Series B has a maturity of 1 year.
a. What would the value of each of these bond 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 mad 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 %u2013year) bond?