Today is 15 June 2017. Lisa is planning to purchase a Treasury bond, henceforth referred to as A. This Treasury bond A has the coupon rate of j₂ = 3.75% p.a. and a face value of $100. The maturity date of this bond is 15 December 2020. It matures at par. Lisa is also considering purchasing some zero coupon bonds. Information concerning zero coupon bond prices (face value of $1) with different terms is listed in table 3. Assume the yield rate for all these financial instruments is j₂ p.a.

Table 3: Zero coupon bond prices 05 0.979912 1 0.960227 0.940938 3 0.885364 3.5 0.867579 a. [2 marks] State the duration of a zero coupon bond with a term of 2.5 years. b. [5 marks] Calculate the duration and the modied duration of Treasury bond A. Give your answer in terms of years, rounded to three decimal places. 4