Suppose that the term structure is flat at 1% (APR, compounded semi-annually). Find the market price of
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Question:
Suppose that the term structure is flat at 1% (APR, compounded semi-annually).
Find the market price of $100 face valuetwo-year Treasury note with a 1% annual coupon rate that is paid semi-annually.(That is, the bond pays $0.50 in interest after 6, 12, 18 and 24 months and the principal of $100 after two years.)
Find the duration of the bond.You may either:
- compute the duration exactly using the formula with Excel or a calculator .
Find the change in price of the bond if all rates fall to 0.80%.You may use any reasonable approximation you wish.
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