a. Should you buy the bond if your discount rate is 6%? Why/why not?
b. If your discount rate is 4%, should you buy the above bond? Explain.
c. Suppose the quote for the bond was 101 rather than 98 and your discount rate is 4%.
Should you buy the bond? Explain.
2. You own a bond that is currently quoted at 97, has a face of $1,000, a coupon of 6% and
matures in 10 years. You are considering selling the bond.
a. Should you sell it if your discount rate is 7%? Explain.
b. Suppose the bond is quoted at 89. Should you sell it? Explain.
c. What is the lowest price for which you would sell the bond? Explain.
