OnJanuary1,Year1,you are considering the purchase of $10,000 of Colin Company’ s8% bonds .
The bonds are duein 10 years, with interest payable semiannually on June30 and effective December31. Based on your analysis of Colin, you determine that a 6% (required) interest rate is appropriate.
a. Compute the price you will pay for the bonds using the present value model (round the answer to the nearest dollar).
b. Recompute the price in a if your required rate of return is 10%.
c. Describe risk and explain how it is reflected in your required rate of return.