Final answer:
The student's question about the present value of a bond is a mathematics problem, specifically in finance and related to valuation of financial instruments. It demonstrates how the value of bond cash flows changes with varying interest rates, impacting the present value calculations.
Step-by-step explanation:
The question involves calculating the present value of a bond's cash flows under different interest rate scenarios. To find the present value of a bond we need to discount the future cash flows (interest and principal repayments) back to their value in today's dollars using the specified discount rate. For a $1,000 face value bond with a 3% interest rate lasting for 3 years, the annual interest payment would be $30 (which is 3% of $1,000). If the interest rate changes to 4%, this new rate is used as the discount rate to calculate the present value of the bond's cash flows.
Using the provided example of a two-year bond with a face value of $3,000 and an 8% interest rate, we first calculate its present value with an 8% discount rate. The calculations show that the present value of the interest payments and the principal repayment is exactly $3,000, which is the face value of the bond. Then, when you recalculate under an 11% discount rate, you would get a different present value, highlighting how bond values fluctuate with changes in market interest rates.