1. Why are long-term, fixed-rate bond values more sensitive to interest rate changes than short-term, fixed-rate bond values?

(Maximum 4 sentences, maximum 100 words.)

2. 2 years ago, you paid $1069 for a $1,000 par bond that has a 7% coupon with semiannual payments. You are selling it today for $1000. You reinvested coupons at the 2.2% annual rate. What is your total return? (Report your answer to two decimals, without the % symbol. E.g., if your answer is 5.1538%, enter it as 5.15.)

3. You paid $957 for a $1,000 par, 8-year bond with a 6% coupon rate and annual payments. You are selling it today, after receiving 3 coupon payments, for $1070. You reinvested coupons at the 4.1% annual rate. What is your total return? (Report your answer to two decimals, without the % symbol. E.g., if your answer is 5.1538%, enter it as 5.15.)

4. What is the price of a bond (to the nearest cent) with 17 years to maturity, 5.8% coupon rate, semiannual payments, par of $1000, and the yield to maturity of 6.73%?

5. What is the duration (D) of a 2-year bond with a $35 annual coupon (paid annually), $1,000 par, and a yield of 6.4%? Record your answer to the nearest 0.001 years.

6. A bond with a $1,000 par, 5 years to maturity, a coupon rate of 3%, and annual payments has a yield to maturity of 3.7%. What will be the actual percentage change in the bond price if the yield changes instantaneously to 5.5%? (If your answer is, e.g., 1.123%, enter it as 1.123.)

7. A bond with duration of 3.4 years has a yield of 4.94%. If the yield changes to 4.05%, what percentage price change would the duration measure predict? (Report your answer to three decimals, without the % symbol. E.g., if your answer is -5.342%, report it as -5.342.)