4) If Boeing issues a 10 year, $1000 face value bond with a 5% coupon rate, if the YTM=3%, the bond pays the coupon semi-annually. What is the value of the bond?

(1) What would happen to the value of the bond described above just after it has been issued, the expected inflation rate rose by 3%, causing investors to require a 6% return? Would we now have a discount bond or a premium bond?

(2) What would happen if the inflation decreased by 1%(YTM=2%)?

(3) plot the yield curve, when YTM=2%, 3%, 5%, 6%.

5. Boeing also considers making this new bond callable and with sinking fund provision, how these provisions will affect the bond YTM? Explain.