Use the information provided to answer the following questions:

a) Kmiec Company is using a 20 year, 12% annual coupon bond. If the current interest rate is 9%, how much should Mike pay for the bond? Is the bond selling at a discount or a premium?

b) Two years later, Mike is looking at Ku Company bonds. Ku is issuing a 20 year, 12% bond as well. Now, the current interest rate is 14%. How much should mike pay for this bond and is it selling at a discount or a premium?

c) What is causing the difference in price between the two bonds?