Kyser Public Utilities issued a bond with a $1,000 par value that pays $90 in annual interest. It matures in 15 years. Your required rate of return is 8 percent.

a. Calculate the value of the bond. b. How does the value change if your required rate of return (1) increases to 12 percent or (2) decreases to 5 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 15 years. Recompute your answers in part (b). e. Explain the implications of your answers in part (d) as they relate to interest rate risk, premium bonds, and discount bonds.

a. If your required rate of return is 8 percent, what is the value of the bond?

b. What is the value of the bond if your required rate of return increases to 12 percent?

What is the value of the bond if your required rate of return decreases to 5 percent?

c. Based on the answers in part (b), a decrease in interest rates (the required rate of return) will cause the value of a bond to____ by contrast, an increase in interest rates will cause the value to ____

Also, based on the answers in part (b), if the required rate of return

1. Equals the coupon interest rate, the bond will sell at ____

2. Exceeds the bond's coupon rate, the bond will sell at ____

3. Is less than the bond's coupon rate, the bond will sell at ____

d. Assume the bond matures in 5 years instead of 15 years.

What is the value of the bond if your required rate of return is 8 percent?

What is the value of the bond if your required rate of return increases to 12 percent?

What is the value of the bond if your required rate of return decreases to 5 percent?

From the findings in part (d), we can conclude that a bondholder owning a long-term bond is exposed to ______ interest rate risk than one owning a short-term bond.