Bananic Ltd. raised $30 million by issued a 10-year, 7 percent semi-annual coupon bonds one year ago. The bond was rated grade A when issued at par. Today, the yield-to-maturity (YTM) of the bond yields an effective annual rate of return of 12 percent.

1. a) How many bonds did Bananic issue?

2. b) Is the bond a premium bond or discounted bond today? Explain your answer without any calculation.

3. c) Determine the bond price today.

4. d) Given that the bonds rating just dropped from A to Baa. Answer and explain your answer for the following questions [within 30 words for each of the following sub-parts].

   1. i) Will the YTM tomorrow higher or lower than today?

   2. ii) Will the bond price tomorrow higher or lower than today?

   iii) Will the coupon rate tomorrow higher or lower than today? iv) Will the current yield tomorrow higher or lower than today?

5. e) You friend, Mary, tells you that a speculator (i.e. an investor who speculates on short term profits) should purchase a higher coupon bond rather than a lower coupon bond if a credit event (a credit event occurs when a person or organization defaults on a significant transaction, in which he or she is unable to honor the terms of the contract entered) is foreseen. Do you agree with her? Explain your answer. [within 60 words]