Bond Valuation

All bonds have a $1,000 face or par value unless otherwise stated. k_c is the coupon rate and k_dis the market cost of debt.

Value a 20yr bond with 14 years to go before maturity. Its par value is 1000, annual coupon is 7.5% and the applicable interest rate is currently 11%. What would be your total rate of return if you sold this bond in one year (a) if Interest rates remained unchanged, (b) Interest rates rose to 15%?