Charles buys a 1000 face value 20-year bond redeemable at par with semiannual coupons at 12% convertible semiannually. He determines his purchase price to yield 14% convertible semiannually, and to allow for a default probability of 1% per halfyear.
Exactly 7 years later, Charles sells the bond to Elizabeth, who determines her purchase price to yield 10% convertible semiannually, and to allow for a 2%o half-yearly probability of default. Assume that the probability of default in any given year is independent of the probability of default in any other year. Find each of the following:

(a) Charles' purchase price.

(b) Elizabeth's purchase price.

(c) The yield rate to Charles, assuming no default occurred during the first seven years.