Victorian Treasury has issued 20-year bonds that pay semiannual coupons at a rate of 2.135%. The current market rate for similar securities is 3.5%. Assume the bond has a face value of $1000.

a. What is the bonds current market value?

b. What will be the bonds price if rates in the market decrease to 1.98%.

c. Refer to your answers in part b. How do the interest rate changes affect premium bonds and discount bonds?

d. Suppose the bonds were to mature in 10 years. How do the interest rate changes in part b affect the bond prices?