Company sold an issue of bonds with a 10-year maturity, $ 1,000 par value, a 10 percent coupon rate, and annual interest
payments. (a) Two years after the bonds were issued, the going rate of interest on bonds such as these fell to 8 percent. At what price would the bonds sell? (b) Suppose that 2 years after the initial offering, the going interest
rate had risen to 12 percent. At what price would the bonds
sell? (c) Suppose that the conditions in part (a)
existed that interest rates fall to 8 percent 2 years after the issue date. Suppose further
that the interest rate remained at 8 percent for the next 10 years. Describe what would
happen to the price of the company's
bonds over time?