Question: You manage a bond portfolio and are considering adding a bond to your holdings. The bond was issued at par in 2019 with a maturity

You manage a bond portfolio and are considering adding a bond to your holdings. The bond was issued at par in 2019 with a maturity of 15 years and pays an annual coupon of 4%. The bond has a call provision that permits the issuer to call 4 years from now at 10% premium to par. In the last year bond yields have declined and the bonds current yield to maturity is 3.75%. If you decide to buy the bond its settlement date will be 1 Jan 2021 and maturity date will be 31 Dec 2034.

1. what is the price of bond? 2. what is its yield to call?

3. what is the bond duration

4. what is its modified duration

5. if interest rates were to promptly declined further to 3.25%, what is your estimate of the percent change in the bond price

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