Question 4 16 marks] Today is 15 November 2018 different Treasury bonds, henceforth referred to as bond A and bond B . Assume the yield rate for all these financial instruments was j2 = 3.15% p.a To construct a portfolio, Jake just purchased two Bond A has a coupon rate of j2 maturity date of this bond is 15 May 2020. 3.05% p.a. and a face value of $100. The Bond B has a coupon rate of j2 maturity date of this bond is 15 January 2022 2.95% p.a. and a face value of $100. The a. [3 marks Calculate the duration and the modified duration of Treasury bond A. Give your answer in terms of years, rounded to three decimal places. b. [2 marksl Calculate the price Jake paid for bond A (rounded to three decimal places) c. [5 marks] Calculate Jake's purchase price of bond B using the RBA approach (rounded to three decimal places) d. 3 marksJake purchased 101 units of bond A and 199 units of bond B to establish his portfolio. Based on your results from part a, b and c, calculate the duration of Jake's portfolio, given that bond B has duration of 3.016 years Give your answer in terms of years, rounded to two decimal places e. [3 marksJack has a future liability to pay. Jack believes that if his portfolio has a duration equal to the maturity of the liability payment, he can use the portfolio to immunise the interest rate risk of meeting this liability, no matter what happens to interest rates. Is he correct? Explain your answer Question 4 16 marks] Today is 15 November 2018 different Treasury bonds, henceforth referred to as bond A and bond B . Assume the yield rate for all these financial instruments was j2 = 3.15% p.a To construct a portfolio, Jake just purchased two Bond A has a coupon rate of j2 maturity date of this bond is 15 May 2020. 3.05% p.a. and a face value of $100. The Bond B has a coupon rate of j2 maturity date of this bond is 15 January 2022 2.95% p.a. and a face value of $100. The a. [3 marks Calculate the duration and the modified duration of Treasury bond A. Give your answer in terms of years, rounded to three decimal places. b. [2 marksl Calculate the price Jake paid for bond A (rounded to three decimal places) c. [5 marks] Calculate Jake's purchase price of bond B using the RBA approach (rounded to three decimal places) d. 3 marksJake purchased 101 units of bond A and 199 units of bond B to establish his portfolio. Based on your results from part a, b and c, calculate the duration of Jake's portfolio, given that bond B has duration of 3.016 years Give your answer in terms of years, rounded to two decimal places e. [3 marksJack has a future liability to pay. Jack believes that if his portfolio has a duration equal to the maturity of the liability payment, he can use the portfolio to immunise the interest rate risk of meeting this liability, no matter what happens to interest rates. Is he correct? Explain your
