Complex Systems has an outstanding issue of $1,000-par-value bonds with a 11% coupon interest rate. The issue pays interest annually and has 11 years remaining to its maturity date.
a. If bonds of similar risk are currently earning a rate of return of 8%, how much should the Complex Systems bond sell for today?
b. Describe the two possible reasons why the rate on similar-risk bonds is below the coupon interest rate on the Complex Systems bond.
c. If the required return were at 11% instead of 8%, what would be the current value of Complex Systems' bond? Contrast this finding with your findings in part a and discuss.