Q2b

a. Peter Pan is planning to invest in a 15-year bond with a face value of $1,000 that pays a 7.4 percent coupon (paying semi-annually). The current market rate for similar bonds is 8.8 percent. (Round to 2 d.p)

i) What is the maximum price that he should paid for this bond? (4 marks)

ii) Is the bond selling at a premium and why? (1 marks)

b. A new financial product will give you a fortnightly return of 0.04% if you invest $60 per fortnight for five consecutive years. How much will you have after five years? (round to 2 dp) (3 marks)