PLEASE SHOW ALL WORKING

For dollar amounts, give your answer to the nearest cent. For interest rates, give our answer as a percentage rounded to 2 decimal places. If any parts of the question use values from earlier parts, use the EXACT values from earlier parts.

QUESTION START

a) Describe the key feature of a zero-coupon bond. (1 mark)

b) The price of a zero coupon bond should be equal to its face value. True or false? Explain. (2 marks)

c) The yield to maturity of a discount bond is greater than its coupon rate. True or false? Explain. (2 marks)

d) You just purchased a 12-year semi-annual coupon bond with a par value of $1,000 and a coupon rate of 7%. The nominal yield to maturity is 6% per annum. Calculate the market price of the bond. (2 marks)

e) Three years later, immediately after receiving the sixth coupon payment, you sell the bond to your best friend. Your best friends nominal yield to maturity is 8% per annum. Calculate the price paid by your best friend. (3 marks)