Question 1

PDQ bonds have a par value of $1,000. The bonds pay $50 in interest every six months and will mature in 10 years.

a)Calculate the price if the yield to maturity on the bonds is 9, 10, and 11 percent, respectively.

b)Explain the impact on price if the required rate of return decreases.

c)Compute the coupon rate on the bonds. How does the relationship between the coupon rate and the yield to maturity determine how a bond's price will compare to it par value?