Final answer:
As interest rates have risen from 6% to 9%, you would expect to pay less than the face value of $10,000 for the bond. The current value of the bond would be approximately $9,727.52, reflecting the lower attractiveness of the bond's interest rate compared to the current market rate.
Step-by-step explanation:
The question involves a business scenario regarding bond valuation when interest rates change. To address part a of the question, given the increase in interest rates from 6% to 9%, one would expect to pay less than the face value of $10,000 for the bond because the bond's fixed interest payments are less attractive when new issues offer higher rates. This phenomenon is known as interest rate risk which inversely affects the bond prices according to the movement of the interest rates.
For part b, the calculation to determine the price you would be willing to pay for the bond would factor in the present value of the bond’s future cash flows, discounted at the new interest rate of 9%. The bond has one year left and will pay an interest of 6% of the face value, which is $600, plus the face value of the bond at maturity. The calculation would be:
Present Value = $600 / (1 + 0.09) + $10,000 / (1 + 0.09) = $553.21 + $9,174.31 = $9,727.52
Therefore, you would be willing to pay approximately $9,727.52 for the bond, which is less than its face value due to the higher prevailing interest rates.