Crawford inc has two bond issues outstanding, both paying the same annual interest of $110, 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 be the value of each of these bonds when the going interest rate is 1) 7 percent 2) 9 percent 3) 13 percent? Assume that there is one more interest payment to be made 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 year) bond?