If any parts of the question use values from earlier parts, use the EXACT values from earlier parts. QUESTION START a) Explain the relationship between the yield to maturity of a par bond and its coupon rate. (1 mark) Duncan recently completed ACST1001 and is hoping to apply what he has learned to start investing. Duncan is interested in a $1,000 15-year bond paying quarterly coupons with a coupon rate of 8%. The yield to maturity for such bonds is 5% p.a. compounding quarterly. b) Calculate the fair price Duncan should pay for one such bond, given the market conditions described above. (2 marks) c) Suppose that 3 months after he initially purchases this bond, immediately after receiving the coupon on that date, Duncan decides to sell his bond to his friend lan. Ian pays a price that yields 4.5% p.a. effective. Calculate the price lan paid, ignoring any other costs (such as brokerage). (2 marks) d) Calculate the return on Duncan's 3 month investment, expressed as a percentage. (1 mark) Duncan is also considering investing in shares in a new company, Greene Daeye Ltd. e) Duncan has predicted that the first dividend will be paid will be exactly three years from today, and amount to $5. From there, Duncan believes the dividend will grow at 20% p.a. for 3 years. After that, the dividend will grow at 4% p.a. indefinitely. Based on the riskiness of this share, Duncan requires a return of 13% on his investment. Calculate the maximum price he is willing to pay for this share. (3 marks) f) State, and then explain the key difference between bonds and shares