Part ii #$2.$ Valuation of bonds

Question $10[5$ marks$]$

Suppose that you are considering purchasing a bond issued by Pacific Energy Corp $($PEC$).$ The PEC$$s bond has $20$ years to maturity and pays an annual coupon of $$60$ with a face value of $$1,000.$ If the market commands a yield to maturity $($YTM$)$ of $6\%$ for other bonds with a similar risk and maturity, how much would you be willing to pay for the PEC$$s bond? $($Lecture notes pp$\mathrm{.}36-37)$

Answer $($show the steps$/$calculation toward your results$)$:

Question $11[5$ marks$]$

Consider the PEC bond described in Question $10$ with the following change:

Suppose that the bond makes an annual coupon of $$70($other terms remain unchanged$).$ Determine $($i$)$ the price of the PEC bond and $($ii$)$ whether the bond is par, discount, or premium.

Answer $($show the steps$/$calculation toward your results$)$: