Face Value = $ 1,000

Coupon Rate = 8 %
t = 12 years
C = Face Value x Coupon Rate
C = 1000 x 0.08
C = $ 80
Answer A(1) Year Cashflow Discount factor @ 7%
Discounted Amount
1 80 0.935 74.77
2 80 0.873 69.88
3 80 0.816 65.30
4 80 0.763 61.03
5 80 0.713 57.04
6 80 0.666 53.31
7 80 0.623 49.82
8 80 0.582 46.56
9 80 0.544 43.51
10 80 0.508 40.67
11 80 0.475 38.01
12 1080 0.444 479.53
Present Value 1,079.43
Answer A(2) Year Cashflow Discount factor @ 8%
Discounted Amount
1 80 0.926 74.07
2 80 0.857 68.59
3 80 0.794 63.51
4 80 0.735 58.80
5 80 0.681 54.45
6 80 0.630 50.41
7 80 0.583 46.68
8 80 0.540 43.22
9 80 0.500 40.02
10 80 0.463 37.06
11 80 0.429 34.31
12 1080 0.397 428.88
Present Value 1,000.00
Answer A(3) Year Cashflow Discount factor @ 10%
Discounted Amount
1 80 0.909 72.73
2 80 0.826 66.12
3 80 0.751 60.11
4 80 0.683 54.64
5 80 0.621 49.67
6 80 0.564 45.16
7 80 0.513 41.05
8 80 0.467 37.32
9 80 0.424 33.93
10 80 0.386 30.84
11 80 0.350 28.04
12 1080 0.319 344.12
Present Value 863.73

Answer B
Required Return = 7%
Present Value 1,079.43
Face Value 1,000.00
Present Value > Face Value
As Present Value is more than Face value, bond is selling at premium
Required Return = 8%
Present Value 1,000.00
Face Value 1,000.00
Present Value = Face Value As Present Value...