How is the value of a bond determined? What is the value of a $10-$year, $$1,000$ par value bond with a $10\%$ annual coupon if its required rate of return is $10\%?$

$(1)$

What happens to the bond$$s value in part d if inflation rises immediately after the bond is issued, causing

r

d

to be $13\%?$ What is the bond$$s value if

r

d

increases to $15\%?$ Would it be a premium or discount bond?

$(2)$

What would happen to the bond$$s value if inflation fell and

r

d

declined to $7\%?$ To $5\%?$ Would it be a premium or a discount bond?

$(3)$

What would happen to the value of the $10-$year bond over time if the required rate of return remained at $15\%?$ If it remained at $5\%?($Hint: With a financial calculator, enter PMT$,$ I$/$YR$,$ FV$,$ and N$,$ and then change N to see what happens to the PV as the bond approaches maturity.$)$