1. A 10-year semi-annual coupon bond (6% coupon rate) was issued eight years ago. You want to buy the bond today and current YTM is 10% and the face value is $1000. (13 points)

What is the duration and modified duration of the bond? With 2% decrease in YTM, how much the bond price will change in percentage? You can show your work in a spreadsheet table below (10 points)

If the bond has a convexity of 60 in semi-annual term, whats new change of bond price given a 2% decrease in YTM? (3 points)

2. Regarding the bond in Question 1, now you can reinvest the coupon payments at the rate of YTM. (15 points)

If you will sell the bond at the effective maturity date of the bond, what is the cash flow can be realized when you sell the bond? Assume YTM of the coupon bond does not change. Is your annual rate of return different from YTM of the bond? Explain. You can show your work in a spreadsheet table below. (12 points)

Right now, theres a zero coupon bond traded in the market with face value of $1000 with time to maturity equal to duration of the coupon bond. Whats the highest price youre willing to pay for zero coupon bond so that the zero coupon bond will offer you no worse than the rate of return of the coupon bond? (3 points)