Hastings Corporation has a discount bond making semiannual coupon payments at a rate of 5.2 percent, with 10 years to maturity.

The current market rate for similar securities is 6.4 percent. Pivotal Corporation has a premium bond making semiannual coupon payments and a rate of 6.0 percent, with 10 years to maturity. The current market rate for securities similar to the Pivotal bond is 5.2 percent.

a. If interest rates remain unchanged, what do you expect the price of these bonds to be in 1 year? In 3 years? In 7 years? In 10 years?

b. Explain what is happening to the price of each bond as the time to maturity approaches zero and why.