a) Explain the relationship between the yield to maturity of a premium bond and its coupon rate. (2 marks)

b) ABC Ltd issues two different bonds with the same yield to maturity: a 20-year zero coupon bond a 15-year semi-annual coupon bond Explain which bond is subject to less interest rate risk. (2 marks)

c) ABC Ltd is planning to issue 17-year semi-annual coupon bonds with a face value of $1,000 and a coupon rate of 7%. The nominal yield to maturity of potential investors is estimated to be 8% per annum. Calculate the required number (expressed in integer) of semi-annual coupon bonds to be issued if the firm aims to raise $12 million. (3 marks)

d) You purchase a bond issued by XYZ Ltd, which is a 8% semi-annual coupon bond with a term to maturity of 10 years, and currently trading at par. Four years later, immediately after receiving the eighth coupon payment, you sell the bond to your best friend. You best friends nominal yield to maturity is 7% per annum. Write down an equation that can be solved to find your total realised return over the 4-year holding period. (3 marks)