Why does longer-term bond fluctuate more when interest rates

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Reference no: EM13907318

(Bond Valuation) Crawford Inc. has two bond issues outstanding, both paying the same annual interest of $85, 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) 5 percent, (2) 8 percent, and (3) 12 percent? Assume there is only 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 deos the shorter-term (1-year) bond?

Reference no: EM13907318

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