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3. A bond has the following characteristics: (25 points) M = $1000; Coupon Rate = 4% (paid annually); n = 3 years a. If the
3. A bond has the following characteristics: (25 points) M = $1000; Coupon Rate = 4% (paid annually); n = 3 years a. If the market rate of interest is r = 5%, determine the market price of the bond. (8 points) b. Determine the duration for the bond using the data found in part (a). (5 points) c. If the market rate of interest decreases to r = 3%, (i) determine the percent change in the price of the bond using the duration measure from part (b). (3 points) (ii) Compare c(i) to the actual change. (2 points)
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