Question: Use discrete annual compounding for question Year (t) 1 2 3 4 5 Bond A's cash flows 0 0 0 0 1000 Bond B's cash

Use discrete annual compounding for question

Year (t) 1 2 3 4 5

Bond A's cash flows 0 0 0 0 1000

Bond B's cash flows 100 100 100 100 1100

Yield to maturity for both bonds 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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