Assuming annual coupon payments

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1. Application of duration

a) Draw the price-ytm(i) graph for a 5% fixed-coupon bond that has 10 years to maturity (assuming annual coupon payments).

b) Calculate the duration for this bond if the interest rate is 3%.

c) What is the approximate percentage change in price if the interest rate rises to 5%? (calculate the price change using the duration approach)

d) What is the actual percentage change in price if the interest rate rises to 5%?

Reference no: EM132234784

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