Question: A five-year bond with a yield of 11% compounded continuously pays 8% coupon at the end of each year. Required: (a) What is the bond

A five-year bond with a yield of 11% compounded continuously pays 8% coupon at the end of each year.

Required: (a) What is the bond price? (4 marks) (b) Compute the bonds duration.

(c) Use the duration to calculate the effect on the bonds price of a 0.2% decrease in its yield.

(d) Recalculate the bonds price on the basis of a 10.8% per annum yield and verify that the result is in agreement with your answer to (c)

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