On September 1, 2012, Sanchez Corp. sold a $700 million bond issue to finance the purchase of a new factory. These bonds were issued in $1,000 denominations with a maturity date of September 1, 2052. The bonds have a coupon rate of 10.00% with interest paid semiannually.

Required:

a) Determine the value today, September 1, 2022 of one of these bonds to an investor who requires an 8 percent return on these bonds. Why is the value today different from the par value?

b) Assume that the bonds are selling for $1,150.00. Determine the current yield and the yield-to-maturity. Explain what these terms mean.

c) Explain what layers or textures of risk play a role in the determination of the required rate of return on Sanchezs bonds.