Suppose that five years ago Johnson Inc. sold a 20-year bond issue that had a $1000 par value and a 6 per cent coupon rate. Interest is paid semi-annually.

a.If the going interest rate is 8 per cent, at what price would the bonds sell today?(3 marks)

b.Suppose that the interest rate remained at 8 per cent for the next 15 years. What would happen to the price of Johnson Inc. bonds over time? (Word limit: 50 words)(1 mark)