1. Consider a corporate bond with the following characteristics: The maturity of the bond is 20 years, with a par value of $1,000. The coupon rate is 9% with semi-annual coupon payments. The required yield is 12%.

(a) What is the fair-value price of the bond, using the bond pricing formula?

(b) Now, use the Excel pricing function to obtain the bond price. The function is PRICE(settlement, maturity, rate, yld, redemption, frequency, basis), where

settlement = date on which the bond was purchased

maturity = date on which the bond was sold

rate = coupon rate (annualized)

yld = yield (annualized)

redemption = 100 (use the default value)

frequency = number of coupons per year

basis = 0 if corporate bond, 1 if Treasury note or bond

Note that PRICE assumes that the par value is $100, so multiply it by 10 to correctly price a bond with a par value of $1,000.