Question: Part 2 Relation between Interest rate, bond prices and duration (40 marks) (up to 600 words) 1. Bond A is a coupon bond. It has

Part 2 Relation between Interest rate, bond prices and duration (40 marks) (up to 600 words) 1. Bond A is a coupon bond. It has a face value of $100. The coupon rate is 5%, and the market interest rate is 10%. The bond matures in 30 years. Using Excel's functions, calculate the price and duration of bond A. 2. Calculate the bond price (column 3) and duration (column 2) for all yield to maturities given in the below table. 3. Calculate bond price change (column 4) using bond price calculated in column 3 of the table. For example, bond price changes when yield to maturity 13% vs yield to maturity 14%, and so on. 4. Calculate bond price change using duration (column 5) for all yield to maturities given in the table below. 5. Plot yield to maturity on x -axis and duration on y-axis. Is the plot a straight line (linear) or a curve (non-linear)? 6. Plot yield to maturity on x-axis and bond price on y-axis. Is the plot a straight line (linear) or a curve (non-linear)? 7. Plot bond price change calculated in Q(3) and Q(4) on y-axis and yield to maturity on x- axis. 8. Are the bond price changes calculated in Q(3) and Q(4) the same or different. Explain your answer clearly. Yield to | Duration | Bond Price Price change maturity Price change using using Bond | duration in Price in column 2 column 3 14% 13% 12% 11% 10% 9% 8% 7% 6% 5% 4% 3% 2% 1%

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