1. Assume that all discount rates are 4% per year, and semi-annually compounded.

You are given the following semi-annual coupon bond.

Settledate: 1-Jan-2019

Maturity date: 1-Jan-2024

Annual coupon rate: 6%

Coupons paid semi-annually

Yield to maturity: 4%

Par value: $1000

Time to maturity: T=5 years

- Calculate the bond price using (y + Delta_y) as the bond's yield to maturity. Round to six digits after the decimal

- Calculate the bond price using (y - Delta_y) as the bond's yield to maturity. Round to six digits after the decimal.

- Calculate the modified duration using the formula above.

-What does the modified duration mean? Assume that the modified duration on Question 1.5 was 4. In that case, if interest rates increase by 1 percentage point, then the bond price...

A) changes by approximately -4%

B) changes by approximately +4%

C) changes by approximately -0.25%

D) changes by approximately +0.25%

E) changes by approximately -1%

F) changes by approximately +1%