Chapter 17, Problem 37P

Imagine that a local water company issued $\$\text{1}0,000$ ten-year bond at an interest rate of $\text{6}\%$.

You are thinking about buying this bond one year before the end of the ten years, but interest rates are now $\text{9}\%$.

1. Given the change in interest rates, would you expect to pay more or less than $\$\text{1}0,000$ for the bond?
2. Calculate what you would actually be willing to pay for this bond.