*It has been assumed that interest is payable Annually and given interest rates are p.a. compounded annually.

Today is 1 January 2019. Lucy is planning to purchase a 10-year 4.15% p.a. Treasury bond with a face value of $100. The maturity date of the treasury bond is 1 January 2029 The bond is redeemable at par.

    • Use Goal Seek to find Lucy’s yield to maturity (express your answer as a j2), if the purchase price is $96.5.
    • Use Goal Seek to find Lucy’s net yield to maturity, that is after tax rate, (express your answer as a j2), if the purchase price is $95.5. Given that Lucy needs to pay 30% tax on coupon payment (interest payment) only.
    • Use Goal Seek to find Lucy’s net yield to maturity, that is after tax rate, (express your answer as a j2), if the purchase price is $94.5. Given that Lucy needs to pay 30% tax on coupon payment (interest payment) and capital gain.
  2. Assume that Lucy can purchase this bond at the price of $96.85 and she is exempted from the tax payment. Calculate Lucy’s holding period yield (express your answer as a j2) for 3 years (from 1/1/2019 to 1/1/2022), 6 years (from 1/1/2019 to 1/1/2025) and 9 years (from 1/1/2019 to 1/1/2028). Given that
    • The reinvestment rate is predicted to be j2 = 4.5% from 1/1/2019 to 1/1/2027 and j2 = 4.7% afterwards.
    • The market yield rate is predicted to be j2 = 4.3%.
  3. Use a bar/column chart to plot your results in part b.
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