A government bond is issued, promising to pay the bearer £1000 in five years’ time. The prevailing..

A government bond is issued, promising to pay the bearer
£1000 in five years’ time. The prevailing market rate of interest is 7%. What
price would you expect to pay now for the bond? What would its price be after
two years? If, after two years, the market interest rate jumped to 10%, what
would the price of the bond be?