Explain interest rate risk and describe how does a bond’s interest rate risk depend on its maturity. b. Explain whether or not each of these provisions will make the bonds more/less attractive as an investment : Call provision; Convertible provision, Zero-Coupon. c. Pixar Inc.’s bonds have a par value of $1,000. The bonds pay $40 coupon every six months and will mature in 10 years.

i. Calculate the price if the discount rate (or the required rate of return) on the bonds is 7, 8, and 9%, respectively.

ii. Explain the impact on price if the required rate of return decreases.

iii. How does the relationship between the coupon rate & the discount rate determine a bond’s price compared to it par value ?

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