Adrian is planning to purchase an Australian Treasury bond with a coupon rate (j₂) of 3.77% and face value of $100. The maturity date of the bond is 15 May 2033. Adrian's bond matures at par.

If Adrian purchased this bond on 7 May 2018, what is his purchase price (rounded to four decimal places)? Assume a yield rate of 4.74% p.a. compounded half-yearly, allowing for taxation. Adrian needs to pay tax at rate 25.3% on coupon payments. Assume the tax on coupon is paid immediately on the coupon payment date.

Question 8Answer

a. $80.8393

b. $79.4313

c. $81.3138

d. $80.8380