Arizona Public Utilities issued a bond that pays $70 in interest, with a $1,000 par value. It matures in 25 years. The market's required yield to maturity on a comparable-risk bond is 8 percent.

a.Calculate the value of the bond.

b.How does the value change if the market's required yield to maturity on a comparable-risk bond (i) increases to 10 percent or (ii) decreases to 7 percent?

c.Explain the implications of your answers in part b as they relate to interest-rate risk, premium bonds, and discount bonds.

d.Assume that the bond matures in 5 years instead of 25 years. Recompute your answers in parts a and b.

e.Explain the implications of your answers in part d as they relate to interest-rate risk, premium bonds, and discount bonds.