A $1,000 bond has a 4.5 percent coupon and matures after eleven years. If current interest rates are 8 percent, what should be the price of the bond? Assume that the bond pays interest annually. Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar.

$

If after four years interest rates are still 8 percent, what should be the price of the bond? Use Appendix B and Appendix D to answer the question. Assume that the bond pays interest annually. Round your answer to the nearest dollar.

$

Even though interest rates did not change in a and b, why did the price of the bond change?

The price of the bond with the longer term is

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than the price of the bond with the shorter term as the investors will collect the

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interest payments and receive the principal within a longer period of time.

Change the interest rate in a and b to 4 percent and rework your answers. Assume that the bond pays interest annually. Round your answers to the nearest dollar.

Price of the bond (eleven years to maturity): $

Price of the bond (seven years to maturity): $

Even though the interest rate is 4 percent in both calculations, why are the bond prices different?

The price of the bond with the longer term is

-Select-

than the price of the bond with the shorter term as the investors will collect the

-Select-

interest payments for a longer period of time.

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