You are considering bonds of two companies. Taxco's bond pays interest at 12% per year and Maxco's at 6% per year. Both have a face value of 1000 and maturity of three years.

a.) What will be the value of bonds if the market interest rate is 9%?

b.) What will be the values of the bonds if the market interest rate increases to 12%?

c.) Which bond declines more in value when the interest rate rises? What is the reason?

d.) What will be the prices of the bonds two years from now assuming market interest rate remains 9%?