Doug has been approached by his broker to purchase a $1,000 bond for $795. He believes the bond should yield 8%. The bond pays a 5% annual coupon rate and has 12 years left until maturity. What should Doug's analysis of the bond indicate to him? Use annual analysis.

Select one:

a. The bond is undervalued; he should not purchase it.

b. The bond is overvalued; he should purchase it.

c. The bond is overvalued; he should not purchase it.

d. The bond is undervalued; he should purchase it.

The relationship between a bond's price and the yield (to maturity)

Select one:

a. changes at a constant level for each percentage change of yield to maturity.

b. is an inverse relationship.

c. is a linear relationship.

d. is a direct relationship.