A $1,000 bond has a 5.5 percent coupon and matures after nine 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 -Select-lesshigherItem 3 than the price of the bond with the shorter term as the investors will collect the -Select-smallerhigherItem 4 interest payments and receive the principal within a longer period of time.

Change the interest rate in a and b to 3 percent and rework your answers. Assume that the bond pays interest annually. Round your answers to the nearest dollar.

Price of the bond (nine years to maturity): $ Price of the bond (five years to maturity): $

Even though the interest rate is 3 percent in both calculations, why are the bond prices different?

The price of the bond with the longer term is -Select-lesshigherItem 7 than the price of the bond with the shorter term as the investors will collect the -Select-smallerhigherItem 8 interest payments for a longer period of time.