Q1(a) A bond with face value $1,000 and annual coupon rate 4.5% has transacted price $1,025. There are 4 more coupon payments yet to be paid, the first one arriving in 150 days' time. What is the clean price for the bond? (28 marks) Q1(b) A stock is usually traded at an average price of $60. The covariance of successive returns on the stock, i.e., trade-by-trade changes in the price, is about -0.36 . Derive Roll's model and estimate the bid-ask spread of the stock expressed as a percentage of the stock's average price? (36 marks) Q1(c) You have purchased and sold shares in a company using an interest free margin loan over a 2year period. The initial and maintenance margin is 70% and 50% respectively. The company pays dividends, and the following table shows the dividends and ex-dividend prices over the period. [ What are the cash flows of your trading activity before and after taking into account the margin loan? (36 marks) Q1(a) A bond with face value $1,000 and annual coupon rate 4.5% has transacted price $1,025. There are 4 more coupon payments yet to be paid, the first one arriving in 150 days' time. What is the clean price for the bond? (28 marks) Q1(b) A stock is usually traded at an average price of $60. The covariance of successive returns on the stock, i.e., trade-by-trade changes in the price, is about -0.36 . Derive Roll's model and estimate the bid-ask spread of the stock expressed as a percentage of the stock's average price? (36 marks) Q1(c) You have purchased and sold shares in a company using an interest free margin loan over a 2year period. The initial and maintenance margin is 70% and 50% respectively. The company pays dividends, and the following table shows the dividends and ex-dividend prices over the period. [ What are the cash flows of your trading activity before and after taking into account the margin loan? (36 marks)