3 Duration Consider a 10 year bond with semiannual coupons and coupon rate c-5%. Suppose the (continuously compounded) yield curve is flat at 5%. 1. (a) Compute the price of the bond using the yield curve. (b) Compute the duration of the bond. 2. Suppose all yields increase to 10%. (a) What is the proportional (percentage) change in the bond price? (b) What is the predicted price change using duration? 3. Suppose the coupon rate is now c-25% and consider the same change in the yield curve from 5% to 10% (a) Redo the calculation in question 2. (Both (a) and (b)) (b) Did the difference between the actual change in bond prices and the one pre- dicted by duration increase or decrease? Provide an intuition for your result