1. Microsoft Inc. has just issued a 5-year, 10% coupon interest rate, $1,000-par bond that pays interest semiannually. The required return is currently 14%.

Required:

1. What is the market price for above bond? (3 marks)
2. What is the market value if required return decreases to 8%? (3 marks)
3. If you are expecting that the market interest rate will be 10% after year 3, how will bond value change? (2 marks)