b.A bond has a 100 face value and a maturity of 5 years. The coupon is 4%, paid semi-annually (that is, 2% paid at 6-month intervals). The yield to maturity is 5%.

i.Calculate the price at which this bond should be trading. (4 marks)

ii. Calculate the Macaulay duration. (4 marks)

c.Consider the following statements:

i. When company directors trade shares of their own companies, they are usually able to generate higher trading profits than other uninformed investors.

ii.Research has shown that stock returns tend to be higher on sunny days, as sunshine improves investors' mood. (For the sake of simplicity, assume that weather is predictable over short horizons.)

iii.Stock returns are usually lower on Mondays, as companies have a preference to announce bad news on weekends when traders and journalists pay less attention.

iv.Information contained within earnings announcements becomes fully reflected in stock prices within a matter of minutes.

Assess which of these statements is compatible with the efficient market hypothesis. If there is no compatibility, which form of the hypothesis is violated and why do you think this violation occurs? (12 marks)