Assume Mellencamp Healthcare System sold bonds that have a 15 year maturity, an 11 percent coupon rate with annual payments, and a $1,500 par value.
a. Suppose that three years after the bonds were issued, the required interest fell to 6%. What would the bonds value be?
b. Suppose that three years after the bonds were issued, the required rate rose to 14%. What would the bonds value be?
c. Compare the answers in both a and b and explain the concept.