Consider the two bonds described below:

Bond A Bond B

Maturity 15 yrs 20 yrs

CouponRate

(Paid

semiannually)

10% 6%

Par Value RM1,00

0

RM1,000

a) If both bonds had a required return of 8%, what would the bonds' prices be?

b) Describe what it means if a bond sells at a discount, a premium, and at its

face amount (par value). Are these two bonds selling at a discount,

premium, or par?

c) If the required return on the two bonds increase to 10%, what would the

bonds' prices be?