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A bond has a 7.5% annual coupon rate with 4 years to maturity and pays annual coupon. par value is $1000
1. What is the price of the bond if the yield to maturity is 5%
2. What is price of the bond if the yield to maturity increases by 0.2%?
3. What is the % change in the price of the bond when yield increases by 0.2%?
4. What is the bond duration? (YTM 5%)
5. What is the modified duration? (prevailing bond yield 5%)
6. Using the modified duration, what is the percentage change in the price if the yield increases by 0.2%
7. What can you conclude regarding the error-estimate based on the modified duration?
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