1) For the purposes of this question only, assume that Saamiya's purchase price was not $100.065, and that we don't know her purchase price. Calculate the duration of this Treasury bond. Assume that Saamiya's purchase yield rate was j2 = 5.2% p.a. Give your answer in terms of years, rounded to three decimal places.

 

2) Priscilla will make a 2-year investment using two consecutive 1-year $500 000 zero coupon bonds. The maturity proceeds of the first zero coupon bond will be rolled over into the second zero coupon bond. The purchase yields for the two 1-year zero coupon bonds will be 2.03% p.a. and 3.6% p.a., respectively (annual effective rates). Note that any surplus funds after one year can be invested for one year at a rate of 3.86% p.a. Question 8 [2 marks] Calculate the price of the second zero coupon bond. Round your answer to four decimal places

Answer rating: 100% (QA)

1 To calculate the duration of the Treasury bond we need to use the modified duration formula Duration 1P dPdy where P is the bond price and dPdy is t... View the full answer