Question: QUESTION 2 Assume the yield curve is flat at 6.5% pa nominal. A cash and $duration-neutral butterfly is to be constructed by selling one thousand

QUESTION 2 Assume the yield curve is flat at 6.5% pa nominal. A cash and $duration-neutral butterfly is to be constructed by selling one thousand 7-year zero coupon bonds and purchasing q_s and q_l zero coupon bonds with maturities 4 and 14 years respectively. We assume that interest accrues semi-annually. We also assume each bond has a face value of $100. (a) What is the price of the 4-year bond? [ Select ] ["40.84", "41.41", "77.73", "77.42", "None of the other answers is correct"] .

(b) What is the price of the 7-year bond? [ Select ] ["64.35", "40.84", "None of the other answers is correct", "63.91", "77.42"]

(c) What is the price of the 14-year bond? [ Select ] ["63.91", "None of the other answers is correct", "40.84", "77.42", "41.41"]

(d) What is the modified duration of the 4-year bond? [ Select ] ["3.756", "4.000", "None of the other answers is correct", "3.874", "7.748"]

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