Explain how a decrease in the general level of interest rates affects the valuation of a firm's bonds. To prove this statement solve and answer the following:
I have $1,000 bind paying 12 percent interest that has 10 years to maturity. If the current interest rates are 10 percent, will a prudent investor pay me more than $1,000 for my bond? Why?
Show your work and how you can compute it on the calculator.