Question: Question 2 a) A 5 year bond that pays 8% annual coupon was issued when the yield was 7.50%. If the yield goes down 65

Question 2

a) A 5 year bond that pays 8% annual coupon was issued when the yield was 7.50%. If the yield goes down 65 basis point, what would be the predicted price of the bond?

b) Consider a 15 year 6.5% semi-annual coupon bond whose duration is approx. 9.50 years when required rate of return (yield to maturity) is 7.58%. Prove that this bond is immunized if you hold it for 9.50 years.

Note: A sincere and complete answer would be rated positive. Do not use Ms Excel please. Thank you

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