Problem 1 a) A bond is maturing in 7 years and paying annual coupons of 5% If the annual required rate of return is 4%, compute: 1. The PV of the bonds; 2. 3. The duration of the bond; The modified duration (volatility); 4. Interpret your result in question 3. b) You have the following bond maturing in 4 years: Face Value = 1.000$; Semiannual dividends = 35$; Annual Interest rate= 5% 1. Compute the PV of the cash flows? 2. What will happen to the bond price if the interest rate decreases to 6%? 3. What will be the price if the annual interest is 4%