Since this bond is illiquid and not actively traded, the customer does not know if $850 is a fair price. It was agreed that you should determine, for each bond, a fair value and a fairrate of return, and then use your analysis to help explain bond valuation to SDI’s executives.
You were also asked to demonstrate how changes in the rate of inflation and in the company’s
risk would affect yields and prices of SDI’s debt, and how that would affect capital budgeting decisions