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 26 units of instrument A and 47 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 = 4.79% 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 = 2.03% p.a. and Joan has just received the coupon payment.

Select one:

a. 123.7377

b. 107.9936

c. 109.0898

d. 106.6948

Answer 1

Correct answer is d. 106.6948

As Joan has just received the coupon payment it means coupon is paid semi annually, so we will divide the yield and coupon payment by 2 and multiply the time by 2