Cashew Nut owns a bond that pays \($80\) in annual interest, with a \($1,000\) par value. It matures in 14 years.

His required rate of return is 8 percent.

a. Calculate the value of the bond.

b. How does the value change if his required rate of return (1) increases to 9 percent or (2) decreases to 6 percent?

c. Explain the implications of your answers in part (b) as they relate to interest rate risk, premium bonds, and discount bonds.

d. Assume that the bond matures in 6 years instead of 14 years. Recompute your answers in part (b).

e. Explain the implications of your answers in part (d) as they relate to interest rate risk, premium bonds, and discount bonds.