Margaret has just bought a 14-year Treasury bond paying coupon semi-annually at j₂ = 5% p.a. The bond matures at par.

a. Find Margaret's purchase price (per $100 face value, rounded to 3 decimal places) of this Treasury bond, allowing for a 30% tax on interest only, to give a yield of j₂ = 3.2% p.a. (net). Draw a cash flow diagram that models this scenario to accompany your answer.

b. Find Margaret's purchase price (per $100 face value, rounded to 3 decimal places) of this Treasury bond, allowing for a 30% tax on interest only. The tax on interest is paid one year later (e.g., for the coupon payment at t = 0.5 year, the tax payment will be paid at t = 1.5 years.), to give a yield of j₂ = 3.2% p.a. (net). Draw a cash flow diagram that models this scenario to accompany your answer.

c. Justify the difference in your answers to parts a. and b. above.

d. If Margaret paid $95.268 per $100 face value for the bond, and was exempt from tax, what yield was associated with her purchase? Use linear interpolation to find this yield and express your yield as a j₂ rate, to one decimal place.