Robert Black and Carol Alvarez are vise presidents of Western Management and codirectors of the companys pension fund management division. A major new client, the California League of Cities, has requested that Western present an investment seminar to the mayors of the represented cities. Black and Alvarez, who will make presentation, have asked you to help them by answering the following questions.

1. (1) What is the value of a 13% coupon bond that is otherwise identical to the bond described in Part d? Would we now have a discount or a premium bond?

(2) What is the value of a 7% coupon bond with these characteristics? Would we now have a discount or premium bond?

(3) What would happen to the values of the 7%, 10%, and 13% coupon bonds over time if the required return remained at 10%? [Hint: With a financial calculator, enter PMT, I/YR, FV, and N; then change (override) N to see what happens to the PV as it approaches maturity.]