Suppose, as in part a, that interest rates fell to 6% 2 years after the issue date. Suppose further that the interest rate remained at 6% for the next 8 years. What would happen to the price of the bonds over time?

The price of the bonds would increase over time if interest rates fell to 6% two years after the issue date and remained there for 8 years. This is because the market value of a bond is inversely related to its yield; when yields go down, prices go up. In this situation, investors would be willing to pay more for the bonds due to their lower interest rate compared to other investments that are currently available. The increased demand for these particular bonds would then push up their price.

Additionally, since bonds (especially long-term ones) have a finite lifespan, a decrease in interest rates enables them to become more attractive as they approach maturity. As they mature and no longer bear any additional interest payments or coupons, investors will be more likely to purchase them at higher prices due to their “attractive” yields relative to other financial products in the market.

Finally, it should also be noted that while falling interest rates do tend to benefit existing bondholders by increasing the prices of their holdings; they can also lead to inflationary pressures which could ultimately erode away any gains made from rising bond values. Thus it is important for investors and businesses alike when considering investment decisions involving fixed incomes securities like bonds – take into account all relevant factors not just current yield levels but potential impacts from future inflation too.