Pacific Homecare has three bond issues outstanding. All three bonds pay $100 in annual interest plus $1,000 at maturity. Bond S has a maturity of five years, Bond M has a 15-year maturity, and Bond L matures in 30 years.
a. What is the value of each of these bonds when the required interest rate is 5 percent, 10 percent, and 15 percent?
b. Why is the price of Bond L more sensitive to interest rate changes than the price of Bond S?