Question 1

Kitty Con Vengie is consider of purchasing three types of bond with 10% coupon rates , with annual payment . All three bonds are currently selling per value $ 1,000.The bonds have different maturity with short'term bond maturity of 5 years . the intermediate-term bond has maturity 10 years , and the long term bond has maturity 25 years.

(a) Determine the value of all three bonds if the required returns increase to 9% and decrease to 7%

(b) If Vengie is afraid of interest rate risk , which bond should she purchase? Justify your answer .