Bond Pricing. The following question has seven parts, (a) through (g). The present value of a bond and the price of a bond are closely related, and the components of this question will examine the relationship between these two quantities. Suppose the nominal interest rate is equal to 1. Think of this as the interest rate on short-term government debt, which is assumed to be perfectly liquid and entirely riskless. Now, suppose that a private company issues a one-period discount bond with face alue F. That is, if you buy the corporate bond today, you get paid F dollars tomorrow. Let P denote me price of the corporate bond today, and let PV denote the present value of the corporate bond day. Value of the corporate bond Question 5 10 pts Bond Pricing: Part (a). Provide an expression for PV, the present value of the corporate bond, in terms of F and . HTML Editore Y TE 3 11 x? & T To 12pt Paragraph Bond Pricing: Part (b). Let y denote the yield to maturity on the corporate bond. Proin for y B I VA- A - I E331 22 x 10 pts Bond Pricing: Part (c). Assume that the corporate bond is perfectly liquid and entirely riskless. just like government debt. Suppose that the price of the corporate bond P exceeded the present value PV. W P> PV, what would be the quantity of corporate bonds traded? Why? 10 pts Bond Pricing: Part (d). Again, assume that the corporate bond is perfectly liquid and entirely riskless. Suppose that the present value of the corporate bond PV exceeded the price P. If PV > P, what would be the quantity of corporate bonds traded? Why? 10 P Bond Pricing: Part (e). Based upon your answers to parts (c) and (d), if corporate bonds are traded, what relationship has to hold between P and PV? Bond Pricing: Part (f). The relationship that you just deduced between P and PV was predicated on the assumptions that the corporate bond was perfectly liquid and entirely riskless. If the corporate bond were risky, which would you expect to be larger, Por PV? Why? Bond Pricing: Part (g). Assuming that corporate bonds are risky, which would you expect to be larger, the interest rate on short-term government debt (i) or the yield to maturity on corporate bonds (y)? Justify your