1. Consider the following two bonds that make semi-annual coupon payments. Assume the first coupon payment occurs in exactly six months, and the bond has a face value of $1000. Bond A Bond B Coupon Rate 3.80% 3.80% Time to Maturity 8 years 18 years YTM 3.6% 4.2% a.) What is the current price (t=0) of Bond A? Be sure to set up the valuation equation. b.) What will be the price of Bond A exactly halfway in between t=0 and the first coupon date? c.) Using a spreadsheet, plot the price-yield relationship for both Bond A and Bond B on the same set of axes. Do this for a range of yields from 2% to 11% (in increments of 50 basis points). d.) Use a spreadsheet to compute the annualized Macaulay duration and modified duration for Bond A at a yield-to-maturity of 3.6%. Provide an interpretation of the modified duration with regards to maturity and interest rate risk. e.) Use a spreadsheet to calculate the annualized convexity measure of Bond A at a YTM of 3.6%. f.) Using the duration approximation formula with a convexity adjustment, what percentage change in the price of Bond A would you expect if the yield decreases by 150 basis points? 1. Consider the following two bonds that make semi-annual coupon payments. Assume the first coupon payment occurs in exactly six months, and the bond has a face value of $1000. Bond A Bond B Coupon Rate 3.80% 3.80% Time to Maturity 8 years 18 years YTM 3.6% 4.2% a.) What is the current price (t=0) of Bond A? Be sure to set up the valuation equation. b.) What will be the price of Bond A exactly halfway in between t=0 and the first coupon date? c.) Using a spreadsheet, plot the price-yield relationship for both Bond A and Bond B on the same set of axes. Do this for a range of yields from 2% to 11% (in increments of 50 basis points). d.) Use a spreadsheet to compute the annualized Macaulay duration and modified duration for Bond A at a yield-to-maturity of 3.6%. Provide an interpretation of the modified duration with regards to maturity and interest rate risk. e.) Use a spreadsheet to calculate the annualized convexity measure of Bond A at a YTM of 3.6%. f.) Using the duration approximation formula with a convexity adjustment, what percentage change in the price of Bond A would you expect if the yield decreases by 150 basis points