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# Moonlight, Inc. has issued two types of bonds. A1 and A2 . Both of them is paying annual interst of 80 ​\$. Maturity of A1 is 12  years. Maturity of A2 is 1  year. a. Find the value A1 and A2 when the

Moonlight, Inc. has issued two types of bonds. A1 and A2 . Both of them is paying annual interst of 80 ​\$. Maturity of A1 is 12  years. Maturity of A2 is 1  year. a. Find the value A1 and A2 when the market interest rate is​ (1) ​6 percent, (2) 9 ​percent, and​(3) ​14 percent? Assume that there is only one more interest payment to be made on the A2 bonds. b. Why does the ​(12​-year) bond fluctuate more when interest rates change than does the​(1​-year) ​bond?

a. When market rate is 6 ​percent, the value of A1 bonds would be ​\$ nothing. ​(Round to the nearest​ cent.)

When market rate is 9 ​percent, the value of A1 bonds would be​\$ nothing.  ​(Round to the nearest​ cent.)

When the market rate is ​14 percent, the value of A1 bonds would be ​\$ nothing.  ​(Round to the nearest​ cent.)

When the market rate is 6 ​percent, the value of Series A2 bonds would be ​\$ nothing. ​(Round to the nearest​ cent.)

When the market rate is ​9 percent, the value of Series A2 bonds would be ​\$ nothing.  ​(Round to the nearest​ cent.)

When the market rate is ​14 percent, the value of Series A2 bonds would be ​\$ nothing.  ​(Round to the nearest​ cent.)

b. Why does the ​(12​-year) bond fluctuate more when interest rates change than does the ​(1​-year) ​bond?  ​(Select the best choice​ below.)

A. Because​ longer-term bondholders are locked into a particular interest rate for a longer period of time but are exposed to same interest rate risk as​ short-term bondholders.

B. Because​ longer-term bondholders are locked into a particular interest rate for a longer period of time and are therefore exposed to less interest rate risk.

C. Because​ longer-term bondholders are locked into a particular interest rate for a longer period of time but are not exposed to any interest rate risk.

D. Because​ longer-term bondholders are locked into a particular interest rate for a longer period of time and are therefore exposed to more interest rate risk.

Apr 06 2021 View more View Less