Question $3(30$ marks$)$

a$)$ Fancy Food, Inc. has issued a bond with par value of $$1,000,$ coupon rate of $9$ percent paid

semi$-$annually, and matures in $10$ years. What is the value of the bond if the required rate of return is

$12$ percent? $(15$ marks$)$

b$)$ Suppose you purchase a zero coupon bond for $$214\mathrm{.}55$ with a face value of $$1,000$ maturing in

twenty years. If the yield to maturity $($YTM$)$ on the bond remains unchanged, what will the price of the

bond be at the end of five years from now?