7~8

Question 7 [2 marks] For the purposes of this question only, assume that Saamiya's purchase price was not $100.065, and that we don't know her purchase price. Calculate the duration of this Treasury bond. Assume that Saamiya's purchase yield rate was j2 = 5.2% p.a. Give your answer in terms of years, rounded to three decimal places. a. 1.893 0 years b. 1.898 8 years c. 1.946 5 years d. 1.949 4 years

Priscilla will make a 2-year investment using two consecutive 1-year $500 000 zero coupon bonds. The maturity proceeds of the first zero coupon bond will be rolled over into the second zero coupon bond. The purchase yields for the two 1-year zero coupon bonds will be 2.03% p.a. and 3.6% p.a., respectively (annual effective rates). Note that any surplus funds after one year can be invested for one year at a rate of 3.86% p.a. Question 8 [2 marks] Calculate the price of the second zero coupon bond. Round your answer to four decimal places. a. $481 417.292 5 b. $482 621.617 1 c. $482 625.482 6 d. $490 051.945 5