Question 3 (15 marks) a. Explain the relationship between the required return and the coupon interest rate that will cause a bond if the bond is sold: (i) At a discount. (1 mark) (ii) At a premium. (1 mark) (iii) At its par value. (1 mark) b. Bernard Tan, a stock market analyst is attempting to find the nominal rate of interest for each of two securities, namely Alpha and Beta issued by different companies at the same point in time. He has gathered the following data: (5 marks) Characteristic Security Alpha Security Beta Time to maturity 3 years 15 years Inflation expectation premium 9.0% 7.0% Risk premium for: Liquidity risk 1.0% 1.0% Default risk 1.0% 2.0% Maturity risk 0.5% 1.5% Other risk 0.5% 1.5% Required: (i) If the real rate of interest is currently 2%, find the risk-free rate of interest applicable of each security. (4 marks) (ii) Find the total risk premium attributable to each securitys issuer and issue characteristics. (4 marks) (iii) Calculate the nominal rate of interest for each security. Compare and discuss your findings.