1)What is interest rate risk? Which bond has greater interest rate risk, a 10-year zero-coupon Treasury STRIPS...

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Question:

1)What is interest rate risk? Which bond has greater interest rate risk, a 10-year zero-coupon Treasury STRIPS or a 10-year Treasury Note?

2)What is the difference between a bond's promised yield and its realized yield? Which is more relevant? When we calculate a bond's yield to maturity, which of these are we calculating?

3)Rolling Company bonds have a coupon rate of 2.50 percent, 11 years to maturity, and a current price of $1,024.24.What is the YTM? The current yield?

4)Atlantis Fisheries has issued a zero-coupon bond at a price of $700 per bond. Each bond has a face value of $1,000 at maturity in 15 years. If these zero-coupon bonds are callable in 10 years at a call price of $850, what is their yield to call?

5)Suppose the yield to maturity on a 2.75% coupon bond is 2.00%. The bond has a face value of $1,000, pays coupons semi-annually, and has a Macaulay duration of 12.91 years. Its price is 908.32. What is this bond's modified duration?

Now suppose the yield to maturity on this bond increases to 2.50%.Approximately what will be the percentage increase in the bond's price? Approximately what will the new price of the bond be? (Its actual new price would be $852.53).