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7. Complete the chart below. Assume a 4% market rate. 3 year, 3% coupon bond Years until Payment Discounted Weight payment Payment (PV/ (PV) Total

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7. Complete the chart below. Assume a 4% market rate. 3 year, 3% coupon bond Years until Payment Discounted Weight payment Payment (PV/ (PV) Total PV) 1 Weight Years 2 3 SUM: Duration: 3 year, zero- coupon bond Weight Payment Discounted Weight Payment (PV/ (PV) Total PV) Years 1 2 SUM Duration: 8. Now compute modified duration for the 3 yr 3% coupon bond with your financial calculator. Record your inputs. 9. Based on your calculated modified duration for the 3 year, 3% coupon bond, what is the effect of a.001 increase in the market rate? Use the approximate with modified duration and also compute the exact change (HINT: use TVM keys to compute bond prices)

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