SuperB Inc. just issued bonds with a coupon rate of 4%, face value of $1,000, and 10 years to maturity. The bond pays coupons semiannually. Estimate the price of this bond in one year for different assumptions of the yield-to-maturity (market rates). Assume rates between 1% and 7% with increments of 0.5%. Calculate the price of the bond at each interest rate and plot the bond prices against the interest rate. What do your results indicate about the relationship between interest rates and bond prices?

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A:

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