An 8% coupon bond with 3 years to maturity has a yield of 7%. Assume that coupon is paid semi-annually and face value is $1,000.

(a) Calculate the price of the bond. (Keep 2 decimal places, e.g. 90.12)  
(b) Calculate the duration of the bond. (Keep 4 decimal places, e.g. 5.1234)  
(c) Calculate this bond's modified duration. (Keep 4 decimal places, e.g. 5.1234)  
(d) Assume that the bond's yield to maturity increases from 7% to 7.2%, estimate the new price of the bond. (Keep 2 decimal places, e.g. 90.12)   

Answer rating: 100% (QA)

Solution a The price of the bond can be calculated using the present value of the bonds future cash flows which is given by P C 1 y2 FV 1 y3 where C i... View the full answer