Motorway Development Corporation builds and maintains highways across Europe. They have an outstanding issue of €100-par-value bonds with an 8% coupon rate. The issue pays interest annually and has 12 years remaining to its maturity date.

a. If bonds of similar risk are currently earning a 4% rate of return, how much should the Motorway Development Corporation’s bond sell for today?

b. Describe the two possible reasons why the rate on similar-risk bonds is below the coupon rate on the Motorway Development Corporation bonds.

c. If the required return were at 10% instead of 4%, what would the current value of Motorway Development Corporation’s bonds be? Contrast this finding with your findings in part a and discuss.