Question: Assume a 7-year zero coupon bond with $1000 face value with a yield of 7%. 1. What is the price of the bond? (5 pts)

Assume a 7-year zero coupon bond with $1000 face value with

Assume a 7-year zero coupon bond with $1000 face value with a yield of 7%. 1. What is the price of the bond? (5 pts) b. Use the duration to calculate the effect on the bond's price of a 0.5% decrease on its yield. (10 pts) c. Recalculate the bond's price on the basis of a 6.5% per annum yield and verify that your result in (b) is a good approximation of the change in the bond's price using the duration. (10 pts)

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