QUESTION 2 (16 marks] Clarrie has just bought a 14-year Treasury bond paying coupon semi-annually at j2 = 5% p.a. The bond matures at par. a. [4 marks) Find Clarrie'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. [4 marks Find Clarrie'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. [2 marks] Justify the difference in your answers to parts a. and b. above. d. [6 marks) If Clarrie paid $95.268 per $100 face value for the bond, and was exempt from tax, what yield was associated with his purchase? Use linear interpolation to find this yield and express your yield as a j2 rate, to one decimal place. QUESTION 3 (16 marks] Mordecai bought a 3-year 15% Treasury bond on 8 May 2020 at a yield of 12 = 18.6% p.a. Coupons can be reinvested at j2 = 14.0% p.a. The bond will be redeemed at par on the maturity date (face value $100). a. [2 marks Calculate the total accumulated value at maturity generated by this bond if Mordecai holds it to maturity and reinvests all coupon payments received at the available rate. b. [2 marks] Calculate the total realised compound yield (TRCY) of this bond. c. [2 marks] Decompose the total accumulated value generated by this bond into: original purchase price, coupons, interest on coupons, and capital gain/loss. d. [2 marks] If Mordecai holds the bond for 2 years and sells it for a yield of j2 = 18.8% p.a., calculate the holding period yield (HPY). e. [2 marks] Calculate duration of this bond if it is held to maturity. QUESTION 2 (16 marks] Clarrie has just bought a 14-year Treasury bond paying coupon semi-annually at j2 = 5% p.a. The bond matures at par. a. [4 marks) Find Clarrie'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. [4 marks Find Clarrie'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. [2 marks] Justify the difference in your answers to parts a. and b. above. d. [6 marks) If Clarrie paid $95.268 per $100 face value for the bond, and was exempt from tax, what yield was associated with his purchase? Use linear interpolation to find this yield and express your yield as a j2 rate, to one decimal place. QUESTION 3 (16 marks] Mordecai bought a 3-year 15% Treasury bond on 8 May 2020 at a yield of 12 = 18.6% p.a. Coupons can be reinvested at j2 = 14.0% p.a. The bond will be redeemed at par on the maturity date (face value $100). a. [2 marks Calculate the total accumulated value at maturity generated by this bond if Mordecai holds it to maturity and reinvests all coupon payments received at the available rate. b. [2 marks] Calculate the total realised compound yield (TRCY) of this bond. c. [2 marks] Decompose the total accumulated value generated by this bond into: original purchase price, coupons, interest on coupons, and capital gain/loss. d. [2 marks] If Mordecai holds the bond for 2 years and sells it for a yield of j2 = 18.8% p.a., calculate the holding period yield (HPY). e. [2 marks] Calculate duration of this bond if it is held to maturity