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Question 2 (16 marks) Sandy purchased a 7-year 3.5% p.a. Treasury bond with a face value of $100 seven years ago. The bond was redeemable at par. Immediately following the receipt of each coupon, Sandy deposited the coupon into a bank account earning a particular reinvestment rate. Over the 7 years, the reinvestment rates earned are shown in table 1. At the time of purchase, Sandy predicted the market rates of return for the next 7 years which are shown in table 2 below. Assume her 7-year forecast (in table 2) is actually correct. Hence, these rates represent the appropriate rates to discount Sandy's future cash flows. Note that these rates are not constant, so Sandy would value a dollar paid at t = 5.5 years as (1 +0.038/2)(1+0.034/2) if her valuation date was at t = 4.5 years. Table 1: Reinvestment rates Year 1-Year 3 (inclusive) 12 3.6% p.a. Year 4 Year 7 (inclusive) 12 = 3.3% p.a. Table 2: Yield rates Year 1 Year 5 (inclusive) ja = 3.8% p.a. Year 6 Year 7 (inclusive) 12 = 3.4% p.a. a. [5 marks) Calculate the accumulated value of Sandy's reinvested coupons at the end of year 4, rounded to 3 decimal places. Your calculation should make reference to the rates in table 1. b. [5 marks) Calculate the sale price at the end of year 4, rounded to 3 decimal places, had Sandy sold bond at that time. Your calculation should make reference to the rates in table 2. c. [2 marks] Sandy bought this bond initially at a yield rate of j2 = 3.7% p.a. Calculate the purchase price, rounded to three decimal places. d. 14 marks] Assume Sandy sold the bond after 4 years at the price calculated in b. Use the results from above parts to calculate Sandy's holding period yield 3 over the 4 years. Give your holding period yield rate as a ja rate, rounded to two decimal places