To finance the growth in its operations, ACC Inc. needs to raise additional capital. Ben and his group decided to issue two bonds for this purpose. Bond N ACC Inc. wants to issue $500,000,000 worth of bonds. These bonds have $1,000 par value, a time to maturity of 20 years, and a 10% coupon rate. Bond N makes semiannual coupon payments. These bonds are issued at par value today. Bond P ACC Inc. wants to issue $100,000,000 worth of pure discount bonds with 7-years to maturity. These bonds also have $1,000 par value. Bond P is issued at a yield to maturity of 8% today.

Suppose two more years have passed and the rating agencies has changed the credit rating of Bond N to AA today. These bonds are trading in the market at a price of $1,086.23.

a. Briefly discuss a reason for the change in the price of Bond N.

b. Briefly discuss if it is possible for Bond P to trade at a price above par as well.