You are considering purchasing a consol that promises annual payments of $4.

a. If the current interest rate is 4 percent, what is the price of the consol?

Instructions: Enter your response to the nearest penny (two decimal places).

The price of the consol is ___$

b. You are concerned that the interest rate may rise to 5 percent. Compute the percentage change in the price of the consol and the percentage change in the interest rate. Compare them.

Instructions: Enter your response for dollar amounts rounded to the nearest penny (two decimal places) and responses for percentages rounded to the nearest tenth (one decimal place).

The new price of the consol would be ___$

The price of the consol falls by % and the interest rises by ___%.

c. Your investment horizon is one year. You purchase the consol when the interest rate is 4 percent and sell it a year later, following a rise in the interest rate to 5 percent. What is your holding period return? (Note: Treat the initial price calculated for the consol as the price paid.)

Instructions: Enter your response rounded to the nearest tenth (one decimal place).

Your holding period return is ___%