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QUESTION 2 [16 marks] Clarrie has just bought a 14-year Treasury bond paying coupon semi-annually at jg = 5% pa. The bond matures at par. a. [4 marks] Find Clarrie's purchase price (per $100 face value, rounded to 3 decimal places) of this Treasury bond, allowing for a 30% tax on interest only, to give a yield of jg = 3.2% p.a. (net). Draw a cash ow diagram that models this scenario to accompany your answer. b. [4 marks] Find Clarrie's purchase price (per $100 face value, rounded to 3 decimal places) of this Treasury bond, allowing for a 30% tax on interest only. The tax on interest is paid one year later (e.g., for the coupon payment at t = 0.5 year, the tax payment will be paid at t = 1.5 years), to give a yield of jg = 3.2% p.a. (net). Draw a cash ow diagram that models this scenario to accompany your answer. (3. [2 marks] Justify the difference in your answers to parts a. and b. above. (:1. [6 marks] If Clarrie paid $95268 per $100 face value for the bond, and was exempt from tax, what yield was associated with his purchase? Use linear interpolation to nd this yield and express your yield as a jg rate, to one decimal place