Part 2 - Question 3:

The parts a) and b) below are independent questions which do not relate to each other. a) A 20-year bond with a face value of $1,000 will mature in 8 years. The bond pays semi-annual coupons at 5% p.a. compounding half-yearly. Mia wants to purchase the bond at a price which gives her a yield to maturity of 6% p.a. compounding half-yearly. Calculate the maximum price Mia should pay for the bond. (Round your answer to the nearest cent) (3 marks)

Note- please how full working out on pen and paper. (Do not use excel)