You will receive $$70$ interest every six months from your investment in a corporate bond. The bond will mature in

eight years from now and has a face value of $$1,000.$ This means that if you hold the bond until its maturity, you

will continue to receive $$70$ interest semiannually and $$1,000$ face value at the end of eight years.

a$.$ What is the present value of the bond in the absence of inflation if the market interest rate is $9\%?$

The present value of the bond in the absence of inflation is $

$($Round to

the nearest dollar.$)$

b$.$ What would happen to the value of the bond if the inflation rate over the next eight years is expected to

be $\%5?$

If the inflation rate over the next eight years is expected to be $5\%,$ the present value of the bond

will be $$.$

$.($Round to the nearest dollar.$)$

$a=3,250$

$b=1,250$

$a=2,350$

$b=5,120$

$a=1,288$

$b=1,699$

$a=1,450$

$b=2,350$