You notice that a $1000 par value bond with a coupon of 10% (paid semi annually) and a maturity of 5 years sells in the bond market for $885. You expect the real interest rate to be 7%, the inflation rate to be 1% and the risk premium on the bond to be 6% over the life of the bond.

A.is this bond over or under priced? show calculations

B. suppose that the company reduces its risky investments so that the risk premium you require is 4%. is the bond over or under priced? show calculations