1. A company issued 10-year bonds with a $1,000 par value and a 5.75% coupon rate. On the day the bonds were issued, the prevailing market rate for bonds of this type was 6.25%.

a) What is the coupon payment amount that each bondholder will receive every six months?

b) On the day they were originally issued, did the bonds sell at par, above par, or below par?

c) What price did investors pay for each bond?

d) How much cash did the company receive from each investor on the day it issued the bonds?

e) How much cash must the company pay (for the principal only) to each bondholder on the day the bonds mature?

2. A $1,000 par value bond has three years remaining until maturity. It bears a coupon rate of 4%. The current price of the bond is $1,005.

a) Is the bond currently selling at par, at a premium, or at a discount?

b) Without doing any math, answer the following question: Is the prevailing market interest rate above, equal to, or below the couponrate of 4%?

c) If you buy the bond at its current price, what will you earn? That is, what is the bond’s Yield to Maturity?

3. A 15-year bond with a 5.5% coupon and a $1,000 par value is currently priced at $940. The current market interest rate is 6.5%. Should you buy the bond? Why or why not?