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 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 4 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.