Instructions: Assume a government bond has a face value of $1,000, a coupon of 6 percent, semiannual payments of interest, and a five-year maturity. If the market interest rate for such a bond is 5 percent, how much is the bond worth? How much is it worth at a market rate of 8 percent?
| 5% Interest |
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Year 2 |
Year 3 |
Year 4 |
Year 5 |
| $1,000 |
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| 6% |
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| 8% Interest |
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Year 1 |
Year 2 |
Year 3 |
Year 4 |
Year 5 |
| $1,000 |
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| 6% |
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