Assignment:
1. Today is 1 January 2018. Jackson who is aged 80 has a portfolio which consists of three different types of financial instruments (henceforth referred to as instrument A, instrument Band instrument C.
a. Instrument Ais a zero-coupon bond with a face value of 100. This bond matures at par. The maturity date is 1 July 2023.
b. Instrument Bis a Treasury bond with a coupon rate of j2= 3.45% p.a. and face value of 100. This bond matures at par. The maturity date is 1 July 2020.
c. Instrument Cis a Treasury bond with a coupon rate ofj2= 2.85% p.a. and face value of 100. This bond matures at par. The maturity date is 1 January 2021.
d. Based on your part b and part c calculation, what is Jackson's holding period yield rate for instrument A, instrument Band instrument C? Assume the reinvestment rate isj2= 4.35% p.a. Express your answers in terms of j2 as a percentage and round your answers to one decimal place.
Table: Survival probability
|
Year
|
Probability of surviving from start of year to end of year
|
|
1
|
0.75
|
|
2
|
0.58
|
|
3
|
0.37
|
|
4
|
0.23
|
|
5
|
0
|