omplex Systems has an outstanding issue of $1,000 -par-value bonds with a 12 % coupon interest rate. The issue pays interest annually and has 10 years remaining to its maturity date.

a. If bonds of similar risk are currently earning a rate of return of 8 %, how much should the Complex Systems bond sell for today?

b. Describe the two possible reasons why the rate on similar-risk bonds is below the coupon interest rate on the Complex Systems bond.

a. Since Complex Systems' bonds were issued, there may have been a change in the number of bonds available or a change in the coupon interest rate.

B. Since Complex Systems' bonds were issued, there may have been a change in the supply-demand relationship for money or a shift in the investors' attitudes towards the firm.

C. Since Complex Systems' bonds were issued, there may have been a shift in the supply-demand relationship for money or a change in the risk towards the firm.

D. Since Complex Systems' bonds were issued, there may have been a shift in the supply-demand relationship for their product or a change in the risk towards loans.

c. If the required return were at 1212 % instead of 88 %, what would be the current value of Complex Systems' bond? Contrast this finding with your findings in part a and discuss.

c. If the required return were at 12 % instead of 8 %, the current value of Complex Systems' bond would be $

When the required return is equal to the coupon rate, the bond value is

equal to

greater than

less than

the par value. In contrast in part a above, if the required return is less than the coupon rate, the bond will sell at a

discount

premium