A $10,000 callable bond is purchased on September 10, 2020. It pays semi-annual coupons at j2 = 6% on September 10 and March 10 of each year. It is redeemable at par after 20 years, but is callable at 107 anytime from the end of 10 years on, and is callable at 102.5 anytime from the end of 15 years on.

(a) Determine the price an investor should pay to guarantee a minimum yield of j2 = 5%. (3 marks)

(b) Suppose it turns out that the bond is called after 13 years. What is the actual yield rate earned by the bondholder? Use the method of averages.

(c) Suppose the bond is purchased on November 5, 2020. Using your answer in (a) as P0, calculate the full (dirty) price, the market (clean) price and the market quotation, q, for this bond.