Assume that you are the lead financial analyst for Target Corporations Capital Expenditure Group the group responsible for making investment decisions. Your new assignment is to lead a team of employees who recently rotated into the area as part of a Management Development Program. These employees have little to no training in finance and its up to you to make sure they have a good basic understanding on security valuations.

Your new team has been tasked with working with an underwriter to help sell $100M in new 10-year, $1,000 face value bonds, to help finance store renovations and technology upgrades. A possible coupon rate is 7% and this is based on recent bond issues of the same maturity by Walmarts and Walgreens. Your team has several questions of you before meeting with the underwriters. In preparation of the team meeting you will document your explanations to their questions, which are as follows:

1. Whats the difference between a coupon rate and a yield (yield to maturity)? How do these rates affect the price of a bond? Can a bond ever sell for less than its face value? With words (about 6-8 sentences) and with Excel examples demonstrate the 3 possible relationships between the coupon rate and the yield and the subsequent impact on bond price:

1. coupon = yield

2. coupon > yield

3. coupon < yield

Assume semi-annual payments and 7% coupon rate when you do the examples.

part 2) Since the coupon rate is fixed, how do we ensure that we are choosing a good rate for the bonds before the number is placed on the bonds?