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3. Bond Yields. If a bond with face value of $1,000 and a coupon rate of 8% is selling at a price of $970, is the bonds yield to maturity more or less than 8%? (LO6-1)

4. Bond Yields. A bond with face value $1,000 has a current yield of 6% and a coupon rate of 8%. (LO6-1)

a. If interest is paid annually, what is the bonds price?

b. Is the bonds yield to maturity more or less than 8%?

5. Bond Pricing. A General Power bond carries a coupon rate of 8%, has 9 years until maturity,

and sells at a yield to maturity of 7%. (Assume annual interest payments.) (LO6-1 and LO6-2)

a. What interest payments do bondholders receive each year?

b. At what price does the bond sell?

c. What will happen to the bond price if the yield to maturity falls to 6%?

28. Credit Risk. (LO6-4)

a. Several years ago, Castles in the Sand Inc. issued bonds at face value at a yield to maturity

of 7%. Now, with 8 years left until the maturity of the bonds, the company has run into hard

times and the yield to maturity on the bonds has increased to 15%. What is now the price of

the bond? (Assume semiannual coupon payments.)

b. Suppose that investors believe that Castles can make good on the promised coupon payments

but that the company will go bankrupt when the bond matures and the principal comes

due. The expectation is that investors will receive only 80% of face value at maturity. If they

buy the bond today, what yield to maturity do they expect to receive?