Final answer:
To calculate the most one should pay for the corporate bond, you need to determine the present value of future cash flows given the bond's coupon rate and compare it to the market rate. Interest rate fluctuations affect the bond's price: bonds sell for less when rates rise, and for more when they fall.
Step-by-step explanation:
The question is focused on calculating the maximum price one should pay for a corporate bond given its coupon rate and comparing it to the market rate. The bond has a par value of $1,000, an annual coupon rate of 9.64%, and a maturity of 10 years. The market rate for bonds of similar risk is currently 7.27%. The bond's valuation takes into account the present value of its expected future cash flows, which include annual coupon payments and the repayment of the par value at maturity, all discounted at the market rate of interest.
The student has been provided with some information on how bond prices are affected by interest rate changes. For instance, when interest rates rise, previously issued bonds with lower interest rates sell for less than their face value, and conversely, when interest rates fall, bonds with higher interest rates will sell for more than face value.