7. What is the value of a 1-year, $1,000 par value bond with a 10% annual coupon if its required rate of return is 10%? What is the value of a similar 10-year bond?

8. (a) What would be the value of the bond described in Q7 if, just after it had been issued, the expected inflation rate rose by three percentage points, causing investors to require a 13% return? Is the security now a discount bond or a premium bond? (b) What would happen to the bonds value if inflation fell, and rd declined to 7%? Would it now be a premium bond or a discount bond? (c) What would happen to the value of the 10-year bond over time if the required rate of return remained at (i) 13% or (ii) remained at 7%?