Bellie Bowls Pty Ltd is considering raising $800,000 for a new capital project by issuing corporate coupon bonds with a maturity of 7 years, a semi-annual coupon rate of 7.00% p.a., and a face value of $1.000. In the market, the comparable bond has a market yield of 8.5% p.a.

Part A Identify the cash flows generated from the Bellie Bowls' coupon bonds over 7 years. Briefly describe how the bondholders are going to receive those cashflows.

Part B Calculate the price of this coupon bond.

Part C How many bonds does Bellie Bowls need to issue to raise the required funds?

Part D Bellie Bowls expects the bond yield to decrease to 8% p.a. Calculate the bond price change when the bond yield changes to 8%. Comment on the price sensitivity of this bond to the change in the interest rate.