Question: A 5-year bond yielding 11% (compounded continuously) pays an 8% coupon at the end of each year. (a) What is the price of the bond?

A 5-year bond yielding 11% (compounded continuously) pays an 8% coupon at the end of each year. (a) What is the price of the bond? (b) How long is the title? (c) Use duration to calculate the effect on the price of the bond of a 0.2% decrease in its yield. (d) Recalculate the price of the bond based on a yield of 10.8% per annum and confirm that the result agrees with your answer in (c).

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