EXERCISE 1–14 On January 1,Year 1, you are considering the purchase of $10,000 ofColinCompany’s 8%bonds.The bonds are due in 10 years, with interest payable semiannually on June 30 and effective December 31.

Based on your analysis of Colin, you determine that a 6% (required) interest rate is appropriate.

Required:

a. Compute the price you will pay for the bonds using the present value model (round the answer to the nearest dollar).

b. Recompute the price in a if your required rate of return is 10%.

c. Describe risk and explain how it is reflected in your required rate of return.