Problem $13-02$

a$-$ A$-$ $$1,009$ bond$-$has a $4\mathrm{.}5$ percent coupon and matures after $10$ years. If current interest rates are $8$ percent, what should be the price of the bond Aghing that the bond pars interest annually. Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar.

$ $$

b$.$ If after five years interest rates are still $8$ percent, what should be the price of the bond? Use Appendix B and Appendix D to answer the auestion, Assuanc that the bond pays interest annually, Round your answer to the nearest dollar.

$5$

e$.$ fien though interest rates did not change in a and $b,$ why did the price of the bond change?

The price of the bond with the longer term is $$ than the price of the bond with the shorter term as the investors will collect the $$ interest payments and recelve the principal within a longer period of time.

d$.$ Change the interest rate in a and b to $3$ percent and rework your answers. Assume that the bond pays interest annually. Round your answers to the nearest dollar.

Price of the bond $(10$ years to maturity$)$: $ $$

Price of the bond $(5$ years to maturity$)$: $ $$

Even though the interest rate is $3$ percent in both calculations, why are the bond prices different?

The price of the bond with the ionger term is $$ than the price of the bond with the shorter term as the investors will collect the $$ interest payments for a longer period of time.