Ann has bought BigBank bonds as an investment. She purchased the bonds on 31 December 2012 (just after the semi-annual coupon payment due on that date had been paid), for a yield to maturity of 5% p.a. The bonds have a face value of $1000, a coupon rate of 4% p.a., a maturity date of 31 December 2030, and pay coupons twice a year.

a. What price (per bond) did Ann pay for these bonds on 31 December 2012?

b. Ann sells the bonds on 31 December 2017 (immediately after receiving a coupon payment) at a yield to maturity of 4.5%p.a. What price (per bond) does Ann receive?

c. Draw a timeline of all the cash flows Ann received during the time she held the BigBank Bonds. (4 marks)

d. Did Ann earn more than 5%p.a. over her holding period, or less than 5% p.a.? Explain why. (4 marks)