Question

Today is 1 July 2020. Joan has a portfolio which consists of two different types of financial instruments (henceforth referred to as instrument A and instrument B). Joan purchased all instruments on 1 July 2013 to create this portfolio and this portfolio is composed of 35 units of instrument A and 32 units of instrument B. Instrument A is a zero-coupon bond with a face value of 100. This bond matures at par. The maturity date is 1 January 2030. Instrument B is a Treasury bond with a coupon rate of j2 = 3.06% p.a. and face value of 100. This bond matures at par. The maturity date is 1 January 2023. (b) Calculate the current price of instrument B per $100 face value. Round your answer to four decimal places. Assume the yield rate is j2 = 3.69% p.a. and Joan has just received the coupon payment.

Select one: a. 94.9899

b. 98.2263

c. 100.0386

d. 98.5086

Answer 1

Price per 100 of face value=100*3.06%/3.69%*(1-1/(1+3.69%/2)^(2*2.5))+100/(1+3.69%/2)^(2*2.5)
=98.5086