Today is 1 July, 2019. Zack has a portfolio which consists of two different types of financial instruments (henceforth referred to as instrument A and instrument B). Zack purchased all instruments on 1 July 2012 to create this portfolio, which is composed of 35 units of instrument A and 36 units of instrument B.

• Instrument A is a zero-coupon bond with a face value of $100. This bond matures at par. Its maturity date is 1 January 2029.
• Instrument B is a Treasury bond with a coupon rate of j₂ = 4.31% p.a. and a face value of $100. This bond matures at par. Its maturity date is 1 January 2022.

Calculate the current price of instrument B per $100 face value. Round your answer to four decimal places. Assume the yield rate is j₂ = 2.53% p.a. and Zack has just received her coupon payment.

Question 5Answer

a. $116.3235

b. $104.2860

c. $106.4410

d. $105.1113