Today is 15 May 2021. Stphanie has just purchased a Treasury bond with a face value of $100, maturing at par and paying coupon at j₂ = 3.4% p.a. The purchase price was $99.803. The maturity date of this bond is 15 May 2023.

a) Use the bond salesperson's formula to estimate Stphanie's purchase yield. Give your answer in j₂ form, rounded to 3 decimal places.

a.

3.135%

b.

3.502%

c.

1.751%

d.

1.877%

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

a.

3.504%

b.

1.752%

c.

3.339%

d.

3.550%

Today is 15 May 2021. Stphanie has just purchased a Treasury bond with a face value of $100, maturing at par and paying coupon at j₂ = 3.4% p.a. The maturity date of this bond is 15 May 2023. Assume that we do not know her purchase price.

c) Calculate the duration of this Treasury bond. Assume the yield rate is j₂ = 2.67% p.a. Give your answer in terms of years, rounded to four decimal places.

a.

3.9016

b.

1.9493

c.

1.9508

d.

3.8987

Today is 15 May 2021. Stphanie has just purchased a Treasury bond with a face value of $100, maturing at par and paying coupon at j₂ = 3.4% p.a. The purchase price was $99.803. The maturity date of this bond is 15 May 2023.

d) Which of following statements is incorrect?

a.

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

b.

The purchase price (i.e., 99.803) of this Treasury bond will increase if the yield rate at purchase is lower.

c.

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

d.

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