Bond RFF 5,4% 1998-2013 is quoting at 108.43% on Dec 1st, 2006. The coupon (5.4%) is paid out on Feb 26th each year and the bond is repaid at its face value on Feb 26th, 2013. Use a sample face value of 100 for the questions below.

What is the market's discount rate on Dec 1st, 2006 among the following choices : 3.85%, 5.92%, 6.66%? First explain that only one answer is theoretically possible, then verify your choice thru the formulas.

Assume that the market's discount rate is equal to 5.4% on Dec 1st, 2006. How much should the bond's clean price (cotation au pied du coupon) be? Is the full price lower, equal or greater than 100? You do not need to do any calculation to answer.