Problem # 2: Pricing a Bond You purchased a bond 6 years ago for $10,000 in the primary market directly form an issuing corporation. The bond has a $10,000 par value, offers a 7% coupon rate, and pays annual coupon payments (one coupon payment per year). Now the bond has 9 years remaining until the maturity date. Current market interest rates are at 8.5%, meaning if you sell this bond to someone in the secondary market they will expect the bond to be priced in a way that will offer them an 8.5% yield to maturity. What is the annual coupon payment associated with this bond?

You note that market interest rates have risen from the time this bond was issued (7%) to a higher level now (8.5%). Therefore, without doing any calculations, what can we determine about the price?

Has the price gone up, stayed the same, or gone down?

What is the price of this bond?

We know the yield to maturity of this bond is 8.5%.

What is the current yield? In your own words, what is the difference between yield to maturity and current yield?