Harriman Industries bonds have 6 years left to maturity. Interest is paid annually, and the bonds have a $1,000 par value and a coupon rate of 10%.
a. What is the yield to maturity at a current market price of (1) $865 and (2) $1,166?
b. Would you pay $865 for each bond if you thought that a "fair" market interest rate for such bonds was 12%-that is, if rd=12%? Explain your answer.