Consider a bond that has a par value of $1,000, pays $50 at the end of each year in coupon payments, and has four (4) years remaining until maturity. Assume that, according to the market, the prevailing annualized yield in other bonds with similar characteristics is calculated based on real interest rate = 2.5%, inflation prime = 3%, default prime = 2%, maturity prime = 0.5%, liquidity prime = 1%, and exchange rate prime = 0% because the cash payments are denominated in U.S. dollars. Show the formulas and numbers to calculate the following requirements:

A. Determine the coupon rate.

B. Determine the discount rate.

C. Determine the appropriate price for the bond.

D. Is the bond trading at par value, discount, or premium? Explain. E. Determine the discount rate and the price of the bond when the default prime declines from 2% to 1%. At this new price, is the bond trading at par value, discount, or prime? Explain.

F. Determine the discount rate and the price of the bond when the liquidity prime increases from 1% to 3%. At this new price, is the bond trading at par value, discount, or prime? Explain.

G. Determine the discount rate and the price of the bond when the exchange-rate prime increases from 0% to 3% (American resident earning European euro-denominated cash payments from a bond issued in Germany). At this new price, is the bond trading at par value, discount, or prime? Explain.