7) Compute the duration for each of the following.

a.) A three-year zero-coupon (pure discount) bond with a $1,000 face value and a required rate of return (yield to maturity) of 7%.

b.) A three-year coupon-paying bond with a face value of $1,000, that pays a 7% annual coupon and has a 7% required rate of return (yield) to maturity.

c.) A three-year mortgage (constant payment) bond with a face value of $1,000 and a 7% interest rate (i.e., required rate of return).

8) In question 7.) above, the required rate of return on all three bonds is initially 7%. Suppose that required rates of return on all three bonds suddenly increase to 9%. Using the durations above, state the predicted (percentage) change in the value of each of these bonds.

a.) Zero-coupon___________

b.) Coupon-paying bond___________

c.) Mortgage bond_____________