A 20-year, $1,000 par value zero-coupon rate bond is to be issued to yield 9 percent. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.

a. What should be the initial price of the bond? (Assume annual compounding. Do not round intermediate calculations and round your answer to 2 decimal places.)

b. If immediately upon issue, interest rates dropped to 8 percent, what would be the value of the zero-coupon rate bond? (Assume annual compounding. Do not round intermediate calculations and round your answer to 2 decimal places.)

c. If immediately upon issue, interest rates increased to 11 percent, what would be the value of the zero-coupon rate bond? (Assume annual compounding. Do not round intermediate calculations and round your answer to 2 decimal places.)

Appendix B Present value of $1, PVF 1 PV = FV (1+1)") Percent 3% 4% 5% 6% 8% 9% 10% 12% Period 1. 2 11% 0.901 0.952 0.907 0.864 0.926 0.857 0.794 0.917 0.842 0.812 7% 0.935 0.873 0.816 0.763 0.713 0.893 0.797 0.712 3 4 0.971 0.943 0.915 0.888 0.863 0.837 0.813 0.789 0.766 0.823 0.784 0.735 0.681 0.772 0.708 0.650 0.731 0.659 0.593 5 6 0.666 0.535 7 0.746 0.711 0.677 0.645 0.630 0.583 0.540 8 9 0.943 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.558 0.527 0.497 0.469 0.442 0.417 0.394 0.500 0.463 1% 0.990 0.980 0.971 0.961 0.951 0.942 0.933 0.923 0.914 0.905 0.896 0.887 0.879 0.870 0.861 0.853 0.844 0.836 0.828 0.820 0.780 10 0.614 0.636 0.567 0.507 0.452 0.404 0.361 0.322 0.287 0.257 0.596 0.547 0.502 0.460 0.422 0.388 0.356 2% 0.980 0.961 0.942 0.924 0.906 0.888 0.871 0.853 0.837 0.820 0.804 0.788 0.773 0.758 0.743 0.728 0.714 0.700 0.686 0.673 0.610 0.552 0.453 0.372 0.962 0.925 0.889 0.855 0.822 0.790 0.760 0.731 0.703 0.676 0.650 0.625 0.601 0.577 0.555 0.534 0.513 0.494 0.475 0.456 0.375 0.308 11 0.623 0.582 0.544 0.508 0.475 0.444 0.415 0.388 0.362 0.585 0.482 0.434 0.391 0.352 0.317 0.286 0.258 0.429 0.397 12 0.557 0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467 0.424 0.386 0.350 0.319 0.290 0.263 0.239 0.218 0.198 0.180 0.164 0.149 0.092 0.057 0.022 0.009 13 0.530 0.326 14 0.505 0.481 0.368 0.340 0.315 0.232 0.209 0.744 0.722 0.701 0.681 0.661 0.642 0.623 0.605 0.587 0.570 0.554 0.478 0.229 0.205 0.183 15 16 0.339 0.292 0.163 0.146 17 0.371 0.350 0.317 0.296 0.270 0.250 0.188 0.170 0.153 0.138 18 0.299 0.275 0.252 0.231 0.212 0.194 0.178 0.116 0.075 0.458 0.436 0.416 0.396 0.377 0.295 0.231 0.142 0.087 19 20 25 0.331 0.312 0.233 0.174 0.277 0.258 0.184 0.232 0.215 0.146 0.099 0.124 0.074 0.130 0.116 0.104 0.059 0.033 30 0.742 0.131 0.044 40 0.672 0.608 0.412 0.307 0.228 0.208 0.141 0.097 0.054 0.067 0.034 0.046 0.021 0.032 0.013 0.015 0.005 0.011 0.003 50