Question: Suppose that zero interest rates with continuous compounding are as follows: Maturity Rate 0.5 Years 0.5 5.5 1 Years 1.0 5.9 1.5 Years 1.5 6.2

Suppose that zero interest rates with continuous compounding are as follows:

 Maturity Rate 0.5 Years 0.5 5.5 1 Years 1.0 5.9 1.5 Years 1.5 6.2 2 Years 2.0 6.4 2.5 Years 2.5 6.5 3 Years 3.0 6.6

A three-year bond pays an 10% coupon per annum paid semiannually.

a- Calculate the price of the bond?

b- Calculate the duration of the bond?

c- If the yield increase 0.2% calculate the price of the bond using duration?

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