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) What is the yield to maturity on a 10-year, 9%, annual coupon, $1000 par value bond that sells for $887.00? that sells for $1134.20? What does the fact that it sells at a discount or at a premium tell you about the relationship between rd and the coupon rate?