e$.(1)$What would be the value of the bond described in part d if$,$ just after it had been issued, the expected inflation rate rose by $3$ percentage points, causing investors to require a $13\%$ return? Would we now have a discount or a premium bond?

$(2)$What would happen to the bond$$s value if inflation fell and rd declined to $7\%?$ Would we now have a premium or a discount bond?

$(3)$What would happen to the value of the $10-$year bond over time if the required rate of return remained at $13\%?$ If it remained at $7\%?($Hint: With a financial calculator, enter PMT$,$ I$/$YR$,$ FV$,$ and N$,$ and then change N to see what happens to the PV as the bond approaches maturity.$)$

f$.(1)$What is the yield to maturity on a $10-$year, $9\%$ annual coupon, $$1,000$ par value bond that sells for $$887\mathrm{.}00?$ That sells for $$1,134\mathrm{.}20?$ What does the fact that a bond sells at a discount or at a premium tell you about the relationship between rd and the bond$$s coupon rate?

$(2)$What are the total return, the current yield, and the capital gains yield for the discount bond? $($Assume the bond is held to maturity and the company does not default on the bond.$)$

g$.$ How does the equation for valuing a bond change if semiannual payments are made? Find the value of a $10-$year, semiannual payment, $10\%$ coupon bond if the nominal rd $=13\%.$

h$.$ Suppose a $10-$year, $10\%$ semiannual coupon bond with a par value of $$1,000$ is currently selling for $$1,135\mathrm{.}90,$ producing a nominal yield to maturity of $8\%.$ However, the bond can be called

after $5$ years for a price of $$1,050.$

$(1)$ What is the bond$$s nominal yield to call $($YTC$)?$

$(2)$ If you bought this bond, do you think you would be more likely to earn the YTM or the

YTC$?$ Why?

i$.$ Write a general expression for the yield on any debt security $($rd$)$ and define these terms: real risk$-$ free rate of interest $($r$*),$ inflation premium $($IP$),$ default risk premium $($DRP$),$ liquidity premium $($LP$),$ and maturity risk premium $($MRP$).$

j$.$ Define the nominal risk$-$free rate $($rRF$).$ What security can be used as an estimate of rRF$?$

k$.$ Describe a way to estimate the inflation premium $($IP$)$ for a t$-$year bond.

l$.$ What is a bond spread and how is it related to the default risk premium? How are bond ratings related to default risk? What factors affect a company$$s bond rating?

m$.$ What is interest rate $($or price$)$ risk? Which bond has more interest rate risk: an annual payment $1-$year bond or a $10-$year bond? Why?

n$.$ What is reinvestment rate risk? Which has more reinvestment rate risk: a $1-$year bond or a $10-$ year bond?

o$.$ How are interest rate risk and reinvestment rate risk related to the maturity risk premium?

p$.$ What is the term structure of interest rates? What is a yield curve?

q$.$ Briefly describe bankruptcy law. If a firm were to default on its bonds, would the company be liquidated immediately? Would the bondholders be assured of receiving all of their promised payments?