Suppose that a bond pays $1000 per year for this year (Current dollars) and next year. Two years from now, there is no payment, but the bond can be redeemed for its face value of $10,000
a. Assume that the interest rate is 5%. What is the price of the bond? (Please show me work)
b. Now suppose that the interest rate falls to 2%. What is the price of the bond? (Please show me work)