Question: 5. (13 points) Microhard has issued a bond with the following characteristics: Par Value: $1,000 Time to maturity: 12 years Coupon rate: 7 percent A.

5. (13 points) Microhard has issued a bond with the following

5. (13 points) Microhard has issued a bond with the following characteristics: Par Value: $1,000 Time to maturity: 12 years Coupon rate: 7 percent A. Calculate the price of this bond if the YTM is 9 percent. (5 points) B. If you sold this bond one year later and the market price is $920 at that time, what rate of return did you earn on the investment? (5 points) C. Yesterday, for the first time in almost 10 years, the Federal Reserve Board voted to increase the level of the short-term interest rate controlled by the Fed. In your view should bond prices increase or decrease as a result? (3 points)

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