Suppose Hillard Manufacturing sold an issue of bonds with a 12-year maturity, a $1,000 par value, a 10% coupon rate, and semiannual interest payments.
Two years after the bonds were issued, the going rate of interest on bonds such as these fell to 5%. At what price would the bonds sell?
Suppose that 2 years after the initial offering, the going interest rate had risen to 11%. At what price would the bonds sell?
Suppose that 2 years after the issue date (as in part a) interest rates fell to 5%. Suppose further that the interest rate remained at 5% for the next 10 years. What would happen to the price of the bonds over time?