Question: (a) A previously issued bond carries a coupon rate of 16 percent, but current market rates on comparable debt have fallen to 10 percent. Assuming that interest is paid annually, plot the market price of this bond as a function of its remaining maturity.
(b) A previously issued bond with a remaining maturity of 20 years carries an annual coupon rate of 16 percent. Plot the market price of this bond as a function of vanous possible market interest rates that may prevail.
(c) Redo (b) assuming that the bond can be called at 5 percent over face value.
(d) Briefly interpret your findings under (a), (b), and (c) above.