1. Both bond A and bond B have 9.4 percent coupons and are priced at par value. Bond A has 7 years to maturity, while bond B has 20 years to maturity.

a)	Assume if interest rates suddenly rise by 2 percent, what is the percentage change in price of bond A and bond B? (Round your answer to 2 decimal places. Negative answers should be indicated by a minus sign. Omit the "%" sign in your response.)

Bond A	%
Bond B	%

b)	Assume if interest rates suddenly fall by 2 percent instead, what would the percentage change in price of bond A and bond B? (Round your answer to 2 decimal places. Omit the "%" sign in your response.)

Bond A	%
Bond B	%

2. Suppose you buy a 7.2 percent coupon bond today for $1,140. The bond has 10 years to maturity.

a.	What rate of return do you expect to earn on your investment? (Round your answer to 2 decimal places. Omit the "%" sign in your response.)

Rate of return

%

b-1.	Two years from now, the YTM on your bond has increased by 2 percent, and you decide to sell. What price will your bond sell for? (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Price

$

b-2.	What is the annual realized yield on your investment? (Negative amounts should be indicated by a minus sign. Round your answer to 2 decimal places. Omit the "%" sign in your response.)

Realized return

%

3. What is the Macaulay duration of a 10.4 percent coupon bond with five years to maturity and a current price of $974.60? What is the modified duration? (Round your answer to 3 decimal places.)

Duration
Macaulay	Years
Modified	Years

4. Consider a 9.00 percent coupon bond with six years to maturity and a current price of $958.50. Suppose the yield on the bond suddenly increases by 2 percent.

1.	Use duration to estimate the new price of the bond. (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Price

$

2.	Calculate the new bond price. (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Price

$

5. A Treasury bond with 8 years to maturity is currently quoted at 108:7. The bond has a coupon rate of 8.3 percent. What is the yield value of a 32nd for this bond? (Round your answer to 3 decimal places.)

Yield value (in basis point)