An investor is considering purchasing an Allstate bond.The bond is rated BBB. The bond has a$1,000 face value, an 8.5% coupon rate and

matures in 5 years.The bond is currently quoted at95.

a)If the investor decides to buy the bond today, how much will she pay, in dollars?

b)If the investor has a discount rate of 4.0%, what is the most she should be willing to pay for the bond today?Make relevant calculations using Excel formulas so I can see all of your work.

c)Based on your calculations, should the investor buy the bond or not?Explain your reasoning briefly.

d)On the same day, an IBM bond,with a face value of $1,000 that will mature in 5 years and a 5% coupon rate is quoted at 100.25. The IBM bond is rated AAA(the discount rate remains 4%).Why would a rational investor pay more for an All Statebond than for the IBM bond? I am looking for a few sentences of explanation here.