Question: A five-year bond with a yield of 7% (continuously compounded) pays an 8% coupon at the end of each year. (a) What is the bonds

A five-year bond with a yield of 7% (continuously compounded) pays an 8% coupon at the end of each year.

(a) What is the bonds price ?

(b) What is 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 6.8% per annum yield and verify that the result is in agreement with your answer to (c).

show calculations and explain ans (D)

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