You hold a bond with nine years until maturity, a YTM of 4 percent, and a duration of 7.5. The cash (one-year) rate is 2.5 percent.
a. In the next few minutes, you expect the market yield to go up by 5 basis points. What is the bond's expected percentage price change, and your expected return, over the next few minutes?
b. Over the next year, you expect the market yield to go clown by 30 basis points. For this period, estimate the following:
i. The bond's expected price change
ii. Your expected return
iii. The bond's risk premium