3.7 A five-year bond with a yield of 11% (continuously compounded) pays an 8% annual coupon at the end of each of the next five years and returns the principal at maturity (the end of the 5th year). (a) What is the bond's price? (b) What is the bond's duration? (c) Use the duration to calculate the effect on the bond's price of a 0.2% decrease in its yield (i.e., the yield decreases from the current 11% to 10.8%). (d) Recalculate the bond's price on the basis of a 10.8% per annum yield and verify that the result is in agreement with your answer to the above part (c). 3.7 A five-year bond with a yield of 11% (continuously compounded) pays an 8% annual coupon at the end of each of the next five years and returns the principal at maturity (the end of the 5th year). (a) What is the bond's price? (b) What is the bond's duration? (c) Use the duration to calculate the effect on the bond's price of a 0.2% decrease in its yield (i.e., the yield decreases from the current 11% to 10.8%). (d) Recalculate the bond's price on the basis of a 10.8% per annum yield and verify that the result is in agreement with your answer to the above part (c)