Quiz Valuation Bonds Problem 1: A firm has issued bonds that have an 8% coupon rate, payable semiannually. The bonds mature in 12 years, have a face value of $1,000, and a yield to maturity of 10%. What is the price of the bonds? Problem 2: a/ What is the value of a 6-year 7.2% coupon bond (principal =$1000) if the appropriate discount rate for discounting cash flow is as below? Year Discount Rate 1 5.8% 2 6.5% 3 6.9% 4 7.3% 5 7.5% 6 7.6% b/ If the bond is discounted at 7.2% what should the investor do? Questions: a/ Draw the graph showing the relationship between the value of a bond and its yield. b/ Show on that graph what will happen to the value of that bond if the yield is increasing