Fast and Loose Company has outstanding an 8 percent, four-year, $1,000-par-value bondon which interest is paid annually.
a. If the market required rate of return is 15 percent, what is the market value of thebond?
b. What would be its market value if the market required return dropped to 12 percent?To 8 percent?
c. If the coupon rate were 15 percent instead of 8 percent, what would be the marketvalue [under Part (a)]? If the required rate of return dropped to 8 percent, what wouldhappen to the market price of the bond?