You own a bond that pays

$110

in annual interest, with a

$1,000

par value. It matures in

20

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

14

percent or (ii) decreases to

6

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

20

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.

Question content area bottom

Part 1

a.What is the value of the bond if the market's required yield to maturity on a comparable-risk bond is

12

percent?

$enter your response here

(Round to the nearest cent.)