Suppose you purchased a corporate bond with $10-$year maturity, $$1,000$ face value, $10\%$ coupon rate, and

semiannual interest payments.

What all this means is$,$ you receive $$50$ interest payment at the end of each six$-$month period for $10$ years $(20$

times$).$ Then, when the bond matures, you will receive the principal amount $($the face value$)$ in a lump sum.

Three years after the bonds were purchased, the going rate of interest $($coupon rate$)$ on new bonds fell to $6\%$

$($or $6\%$ compounded semiannually$).$

$1.$ What is the current market value $($P$)$ of the bond $(3$ years after the purchase$)?$

$2.$ Explain what happens to bond value when interest rate drops.