Question 2 Today is March 1, 2009 and an investor is considering bonds issued by HSU and HKU with the following properties. Bonds HSU HKU Coupon 7%p.a. 4%p.a. op.a. Maturity Mar 1, 2012 May 1, 2014 May 1, 2014 Coupon Dates Mar 1, Sep 1 YTM Price (Dirty) 5.14%p.a X Y $92.42 May 1, Sep 1 (a) Find X, the price of HSU's bonds? (2 marks) (b) Find Y, the yield to maturity of HKU's bonds? (You may consider using the simplified formula YTM (in %) = [C+(F-P)]/(F+P)/2) with the closest approximate maturity. (2 marks) (c) An investor decides to buy the HSU bonds and keep them until September 1, 2011 when he sells them. This is roughly 2.5 years holding period. He plans to invest all the coupon payments in a bank account that pays 3%p.a. semi-annually. His idea plan is when he sells the bonds, he wants the sale of the bonds and the interest from the bank account balance together to be worth $10,000. (i) If the yield to maturity (YTM) on the bonds is constant, how much does he need to invest in bonds on March 1 2009? (3 marks) (ii) What is the corresponding annual Realised Compound Yield (RCY) for a holding period until September 1, 2011