1. How much money will Bay Path realize from its $50 million bond issue if the actual yield is either 5% or 7%?
Hint: Refer to your answers to Question 2. and ignore selling costs.
2. Suppose Bay Path actually offers a coupon rate of 6% on its twenty-year bonds, expecting to sell the bonds at par. What will happen to the price of a single bond with a par value of $1,000 if the required bond yield unexpectedly falls to 5% or rises to 7%?