[5 marks ] Find the price (per $100 face value, rounded to 3 decimal

places) of a 10-year 10% Treasury bond, allowing for 30% tax on interest

only, to give a yield of j 2 = 8% p.a. (net). Draw a cash flow

diagram that models this scenario to accompany your answer.

b. [2 marks ] Explain how, and why, the price you calculated in a. would

change (up or down) if allowance was made for tax on capital gains as

well as on interest. Do not do any further calculations. Assume that

the net yield and tax rate have the same values as in a.

c. [2 marks ] If the bond in a. sold for $92.411 per $100 face value, use an

approximate formula (like the bond salespersons method) to calculate

the yield ( j 2) to maturity.

d. [2 marks ] Repeat c. above, but use linear interpolation