Question 4

Han is planning to purchase a Treasury bond, henceforth referred to as A. This Treasury bond A has the coupon rate of j₂ = 6% and a face value of $100. The maturity date of this bond is 15 May 2030. It matures at par.

a. Calculate the bond A price if Han purchased it on 10 November 2016 (rounded to three decimal places). Assume the yield rate is j₂= 5.5% p.a.

b. Calculate the bond A price if Han purchased it on 8 February 2017 (rounded to three decimal places). Assume the yield rate is j₂ = 5.7% p.a.

Meanwhile, Han is also considering buying another Treasury bond B. This bond B is a 2-year Treasury bond with $100 face value, maturing at par. The coupon rate of this bond is j₂ = 5.2% p.a.

c. Calculate the duration of Bond B. Assume the yield rate is j₂ = 4.9% p.a. Give your answer in terms of years, rounded to three decimal places

d. Calculate the modified duration of Bond B. Assume the yield rate is j₂ = 4.9% p.a. Give your answer in terms of years, rounded to three decimal places