Today is 15 May 2020, Sue just purchased a Treasury bond with a coupon rate of j₂ = 3.2% p.a. and a face value of $100 that matures at par. The purchase price was $99.091. The maturity date of this bond is 15 May 2022.

a) Use the approximate bond yield formula to estimate the yield rate. Give your answer in j₂ form, rounded to 3 decimal places.

Select one:

a. 3.304%

b. 1.961%

c. 1.836%

d. 3.671%

b) Use linear interpolation to calculate the yield rate. Give your answer in j₂ form, rounded to 3 decimal places. Hint: 1.65% per half year and 1.9% per half year are the lower bound and the upper bound for the linear interpolation

Select one:

a. 3.676%

b. 3.511%

c. 1.838%

d. 3.550%

c) Calculate the duration of this Treasury bond. Assume the yield rate is j₂ = 3.26% p.a. Give your answer in terms of years, rounded to four decimal places.

Select one:

a. 1.9515

b. 1.9532

c. 3.9064

d. 3.9030

d) Which of following statement is incorrect?

Select one:

a. The purchase price (i.e., 99.091) of this Treasury bond will increase if the yield rate at purchase is lower.

b. The duration of this Treasury bond will be higher if its coupon rate is higher.

c. The purchase price of this Treasury bond will decrease, if this Treasury bond is subject to a 30% tax on interest and capital gain.

d. We can use the duration of this Treasury bond to measure its price sensitivity.