Linze bought a $1 000 000 90-day bank bill on 5 August 2014 at a yield of 2.65% p.a. He sold the bond on 17 October 2014 at a yield of 2.71% p.a. a. [2 marks] What is Linze's annualised yield over this holding period? b. [2 marks] Decompose Linze's dollar yield on this transaction into an interest rate component and a capital gain/loss component. Question 2 [5 marks] In OLQ2 and GSPT1 you did numerous duration calculations for a variety of bonds. Examining your results, explain how your results illustrate the following claims (from slides 41–42 of your week 06 lecture). a. [1 mark] For two bonds with the same coupon rate and yield to maturity, the one with the longer term to maturity has a higher duration. For two bonds with the same term to maturity and yield to maturity, the one with the lower coupon rate has a higher duration. b. [1 mark] For two bonds with the same term to maturity and coupon rate, the one with the lower yield to maturity has a higher duration. For two bonds with the same coupon rate and yield to maturity, the one with the shorter term to maturity has a lower duration. c. [1 mark] For two bonds with the same term to maturity and yield to maturity, the one with the higher coupon rate has a lower duration. For two bonds with the same term to maturity and coupon rate, the one with the higher yield to maturity has a higher duration. Gordo, the owner of a gold mine, estimates the net cash flow from his mining operations will be as follow. Time (years) Net cash flow ($) 1 500 000 2 400 000 3 300 000 4 200 000 5 100 000 d. [2 marks] Calculate the duration of the project at an interest rate of 4% p.a.