Question 3 Suppose you observe the following market data on debt securities: Security Coupon (p.a.) Yield to maturity (p.a. continuously compounded) n.a. 2.00% 6-month Treasury Bond 1-year NZ Government Stock 10%, semi-annual 4.00% Note: Data deviates from the current market conditions as it simplifies the calculations. Required: (a) What are the continuously compounded zero-coupon yields for 6 months and one year, respectively? Report your answer in percentage (%) with 4 dps. (4 marks) (b) What is the duration of the following default-free bond portfolio? (4 dps) Time to maturity Number held 1 year 60,000,000 Coupon rate (p.a.) 8.00% 6.00% 1 year 75,000,000 Note: Each bond has a face value of $1.00 and coupons are paid semi-annually. You should assume the zero-coupon rate calculated in part a above. Note: Use the following formula to measure the duration of the bond portfolio, i.e., , where ti, c, and r, denote for term, cash-flows, and zero-coupon yield for the ce ih period