Question: Use discrete annual compounding for question 1 Year (t), Bond A's Cash Flow, Bond B's cash flows 1, 0, 100 2, 0, 100 3, 0,

Use discrete annual compounding for question 1

Year (t), Bond A's Cash Flow, Bond B's cash flows

1, 0, 100

2, 0, 100

3, 0, 100

4, 0, 100

5, 1000, 1100

The Yield to maturity for both bonds is 5%.

A) what are the current prices of the bonds?

B) What is the duration of each of the bonds?

C) If the yield to maturity of both bonds were to increase 75 basis points, what would be the approximate percentage change in the prices of both bonds? (Do not recalculate the prices of the two bonds.)

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