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What will be maximum amount in market interest rate

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Question (i) Suppose Danny Corporation issued a corporate bond four years ago at a par value (or face value) of $20,000 for a period of 10 years. The coupon rate is 10% for every 6 months until the maturity of the bond. If an investor is interested to purchase this bond now, what will be the maximum amount he/she is willing to pay for it if the market interest rate (i.e. the best alternative rate of return the investor can get) is 8% per year?

Question (ii) Most bonds pay a fixed coupon interest rate. Explain what would happen to people's demand for bonds and the price of the bonds under the following two situations: (1) when market interest rate falls and (2) when market interest rate rises.

Reference no: EM132467696

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