Question 3 (18 marks). A bank has issued a bond on April 1st 2020 which pays coupons at a rate of 3% of the nominal value twice a year in arrears. Coupon payments are due on 1st April and 1st October and the bond is redeemable at 110% of nominal on 1st September 2030. (a) An investor purchases the bond on 1st March 2021. Show that the price of the bond is approximately 76 per 100 nominal assuming a gross redemption yield of 7%. [7] (b) The investor pays income tax at 40%. In addition, assume that the inflation rate is constant at 1.5%. Calculate the investor's net real rate of return assuming she holds the bond until maturity. State any approximations made. [11]