Problem: Your company has two bond issues outstanding. They both have an 8% coupon rate and a $1,000 par value. One bond matures in two years while the other bond matures in 20 years.
Question 1. Using an Excel spread sheet, calculate the value of each of these bonds if:
a) Current market rates are 5%.
b) Current market rates are 8%.
c) Current market rates are 13%.
Question 2. Why does the longer-term bond fluctuate more in value than the shorter-term bond?