Market Yield Rates and Bond Values Smith & Company issued $80 million maturity value of 5-year bonds, which carried a coupon rate of 6%, with interest paid semiannually.

At the time of the debt offering, equivalent risk-rated bonds were yielding 8%.

One year after the 5-year bond offering, yield rates had risen to 10%; but, by the second anniversary of the bond sale, the yield rate on similarly risk-rated debt instruments had dropped to only 4%.

Calculate the proceeds from the sale of the 6%, 5-year bonds. Use Excel or a financial calculator for your computations. Round your answers to the nearest dollar.

$Answer

Calculate the book value of the bonds after 1 year and after 2 years. Do not round until final answer. Round answers to the nearest dollar.

Year 1	$Answer
Year 2	$Answer

Calculate the market value of the bonds after one year and after two years. Use Excel or a financial calculator for your computations. Round your answers to the nearest dollar.

Year 1	$Answer
Year 2	$Answer

What is the relationship between market yield rates and bond values?

AnswerInversely correlatedPositively correlated