Question 3 (20 Marks) (A) An investor bought an US Treasury Bond that pays annual 5.25% coupon with a maturity of 3 years. Three (3) months (90 days) later, the investor is contemplating to sell the bond at an annual 5.55% yield to maturity. In the market, the US Treasury bond dealer is making a bid at 95.9055% and the investor seems to be willingly to sell it around this price. Should he sell his bonds at the market bid price? Note: The US Treasury Bond follows a Aet/360 convention (6 Marks) (B) The "bid" and "ask yields for a 100-day US Treasury Bill were quoted by a bond dealer as 5.91% and 5.89%, respectively. The face value of this US Treasury Bill is $100,000. Shouldn't the "bid yield" be less than the "ask yield", because the "bid yield" indicates how much the dealer is willing to pay and the "ask yield" is what the dealer is willing to sell the Treasury bill for? Please explain your view on this with an illustration of calculation. (4 Marks) (C) An investor is investing in a bond with a 6-year maturity with 6% annual coupon at PAR. The investor plans to invest the bond for 4 years before selling it off. Assume further that in the following years interest rates follow a downtrend, so that the coupon received in year I is invested for three years at 4.5%; the coupon received in year 2 is reinvested for two years at 3%, and the coupon received in year 3 is reinvested for 1 year at 2%. 4 years later, the YTM of the bond is expected to increase to 8% What's the realized compound yield (RCY) in year 4. (10 Marks)