## Question

# Taysom purchases a 10,000 4-year 10% par-value bond with annual coupon payments that is priced to yield 5% annually. Calculate the absolute difference between the

Taysom purchases a 10,000 4-year 10% par-value bond with annual coupon payments that is priced to yield 5% annually. Calculate the absolute difference between the exact new price of the bond, and the approximation for the new price of the bond using the following methods, if the yield rate were to increase by 0.5%.

(a) The first-order Macaulay approximation.

(b) The tangent approximation.

(c) The quadratic approximation. Please help me with this question. The answers are: 0.11639, 2.232, and 0.02547.

Please show work with equations not excel files!!

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