In $2015,$ a $$10,000$ bond due in $2030$ with a $10$ percent coupon will pay $$500$ every six months

for its $15-$year life. In addition, the bond issuer promises to pay the $$10,000$ principal at maturity in $2030.$ Therefore, assuming the bond issuer does not default, the investor knows what payments $($cash flows$)$ will be made and when they will be made.

a$.$ If the prevailing nominal risk$-$free rate is $7$ percent and the investor requires a $3$ percent risk premium on this bond.

$(6$ marks$)$

b$.$ Assume an investor requires $12$ percent return on the bond. Find the present value of the interest payments and the present value of the principal.

$(4$ marks$)$