1. A $1,000 face value bond has a coupon of 4% (paid annually) and will mature 17 years from today?

A.Assume that the yield-to-maturity is 4.5%.What is the bond's:

i.Duration

$40 *

ii.Modified Duration

B.Assume that the bond's yield-to-maturity immediately changes from 4.5% to 3.5% (the bond still has 17 years to maturity).

i.Estimate the % change in the bond's price using modified duration

ii.What is actual bond price (at YTM = 3.5%), and the % price change (from YTM = 4.5% to 3.5%)?

iii.Why is there a (large) difference between the actual and estimated % price changes in this case?