Basic bond valuation Complex Systems has an outstanding issue of

$1 comma 0001,000-par-value

bonds with a

1111%

coupon interest rate. The issue pays interest annually and has

1616

years remaining to its maturity date.a.If bonds of similar risk are currently earning a rate of return of

99%,

how much should the Complex Systems bond sell for today?

b.Describe the two possible reasons why the rate on similar-risk bonds is below the coupon interest rate on the Complex Systems bond.

c.If the required return were at

1111%

instead of

99%,

what would be the current value of Complex Systems' bond? Contrast this finding with your findings in part a and discuss.

a.If bonds of similar risk are currently earning a rate of return of

99%,

the Complex Systems bond should sell today for

$nothing.

(Round to the nearest cent.)

b.Describe the two possible reasons why the rate on similar-risk bonds is below the coupon interest rate on the Complex Systems bond.(Select the best answer below.)

A.

Since Complex Systems' bonds were issued, there may have been a change in the supply-demand relationship for money or a shift in the investors' attitudes towards the firm.

B.

Since Complex Systems' bonds were issued, there may have been a change in the number of bonds available or a change in the coupon interest rate.

C.

Since Complex Systems' bonds were issued, there may have been a shift in the supply-demand relationship for money or a change in the risk towards the firm.

D.

Since Complex Systems' bonds were issued, there may have been a shift in the supply-demand relationship for their product or a change in the risk towards loans.

c.If the required return were at

1111%

instead of

99%,

the current value of Complex Systems' bond would be

$nothing.

(Round to the nearest cent.)When the required return is equal to the coupon rate, the bond value is

equal to

greater than

less than

the par value. In contrast in part a above, if the required return is less than the coupon rate, the bond will sell at a

discount

premium

(its value will be greater than par). (Select the best answers from the drop-down menus.)