2 (Essential to cover) Consider a four-year bond with a face value of $100 and a coupon rate of 10%. The term structure of interest rates is flat at 5%, i.e. =5% for all t. a. Please calculate the duration of this bond, and use the duration rule to estimate the change in price (in dollars) if the term structure of interest shifts to 6%? b. What would be the actual price change? c. Could you please explain the approximation error of using duration rule by the price-yield curve and thus the relationship between yield and duration? d. Now assume a shift in the term structure would shift from 5% to 4%? Is the change in price larger or smaller compared to the shift in a) from 5% to 6%? Explain why this occurs. Q3 (Essential to cover) In this problem the term structure of interest rates is flat at 8%. The following bonds and liabilities are given: Bond A: A zero-coupon bond with a face value of $100 and a time to maturity of 2 years. Bond B: A zero-coupon bond with a face value of $100 and a time to maturity of 6 years. Bond