1. Use financial calculator

2. A $1,000 bond has a 8.5 percent coupon and matures after eleven years. If current interest rates are 10 percent, what should be the price of the bond? Assume that the bond pays interest annually. . Round your answer to the nearest dollar.

3. $

4. If after four years interest rates are still 10 percent, what should be the price of the bond? . Assume that the bond pays interest annually. Round your answer to the nearest dollar.

   $

5. Even though interest rates did not change in a and b, why did the price of the bond change?

   The price of the bond with the longer term is -Select-lesshigher than the price of the bond with the shorter term as the investors will collect the -Select-smallerhigher interest payments and receive the principal within a longer period of time.

6. Change the interest rate in a and b to 6 percent and rework your answers. Assume that the bond pays interest annually. Round your answers to the nearest dollar.

   Price of the bond (eleven years to maturity): $ Price of the bond (seven years to maturity): $

   Even though the interest rate is 6 percent in both calculations, why are the bond prices different?

   The price of the bond with the longer term is -Select-less/ higher than the price of the bond with the shorter term as the investors will collect the -Select-smaller/ higher interest payments for a longer period of time