Problem:
1. A $1,000 bond has a coupon rate of 8 percent and matures after ten years.
Required:
Question 1: What is the current price of the bond if the comparable rate of interest is 8 percent?
Question 2: What is the current price of the bond if the comparable rate of interest is 10 percent?
Question 3: What are the current yields given the prices determined in parts (a) and (b)?
Question 4: Why are the prices in (a) and (b) and the current yields in (c) different?
Explain in detail.