Bond Characteristic Maturity Face value Coupon Rate Coupon Frequency 5 years $1,000 8% (annual) Quarterly a) Suppose (for part a only!) that the bond's price is $1,100. What would be the bond's effective annual YTM? (3 points) Now assume an effective annual YTM of 7% per year for the remainder of the exercise. b) What is the bond's price? (3 points) c) What is the holding period return if an investor purchases this bond at issue and sells it after 1.5 years? (2 points) d) What is the sales price (invoice price) of the bond if the investor chooses to sell it 1 year and 305 days after it was issued? (3 points) e) Compute the annual Macaulay duration (in years) of the bond. (3 points) f) Compute the bond's annual convexity. (3 points) Note that you need to divide the quarterly convexity by 4to arrive at the annual convexity. g) Assume that the yield curve moves down by 1PP to 6% right after the bond was issued. Recalculate the bond's exact price. How large is the price change? (in %) (3 points) h) Assume that the yield curve moves down by 1PP to 6% right after the bond was issued. Recalculate the bond's price using the approximate duration formula. How large is the price change? (in %) (2 points) Assume that the yield curve moves down by 1PP to 6% right after the bond was issued. Recalculate the bond's price using the approximate duration formula (with the convexity term). How large is the price change? (in %) (2 points)