1. A company in a line of business similar to Bay Path’s recently issued at par noncallable bonds with a coupon rate of 5.8% and a maturity of twenty years. Moody’s rated the bonds Aa1 and Standard & Poor’s awarded them AA. What rate of return (yield to maturity) did investors require on these bonds if the bonds sold at par value?
2. Suppose Bay Path actually offers a coupon rate of 6% on its twenty-year bonds, expecting to sell the bonds at par. What will happen to the price of a single bond with a par value of $1,000 if the required bond yield unexpectedly falls to 5% or rises to 7%?