You are considering purchasing a bond with the following characteristics: maturity current date is March 15, 2022

par value = $1,000

coupon rate = 4% per year

payment schedule = semiannual (January 15, July 15)

maturity date = July 15, 2031

required rate of return = 6% per year

A. Draw a time line illustrating the expected future cash flows for this bond.

B. What is the highest price you would be willing to pay for this bond and still receive your required 6% annual return? In other words, what is the value of the bond?

C. Assume that the bonds current market price is $795. Would you be willing to buy the bond at this market price? Why or why not?

D. Assume that the current market price for this bond is $795. If you purchase the bond at this price, what will your expected return (yield-to-maturity) be?