You own a bond that pays $120 in annual interest, with a $1,000 par value. It matures in 10 years. The market's required yield to maturity on a comparable-risk bond is 10 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 16 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 10 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.