You own a bond that pays $100 in annual interest, with a $1,000 par value. It matures in 15 years. The market's required yield to maturity on a comparable-risk bond is 12 percent.

a.??Calculate the value of the bond.

b.??How does the value change if the yield to maturity on a? comparable-risk bond? (i) increases to

15

percent or? (ii) decreases to

8

?percent?

c.??Explain the implications of your answers in part b as they relate to? interest-rate risk, premium? bonds, and discount bonds.

d.??Assume that the bond matures in

5

years instead of

15

years and recalculate your answers in parts a and

b.

e.??Explain the implications of your answers in part d as they relate to? interest-rate risk, premium? bonds, and discount bonds.