You own a bond that pays 80$ in annual interest, with a 1000$ par value. It matures in 20 years. Your required rate of return is 8%.

• a: Calculate the value of the bond.
• b: How does the value change if your required rate of return (i) increases to 10% or (ii) decreases to 4% ?
• c: Explain the implications of your answers in part BV1-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. Recompute your answers in part BV1-b.