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A $1,000 face value bond has a coupon of 5% (paid annually) and will mature 20 years from today? A. Assume that the yield-to-maturity is

A $1,000 face value bond has a coupon of 5% (paid annually) and will mature 20 years from today?

A. Assume that the yield-to-maturity is 6%. What is the bonds:

i. Duration

ii. Modified Duration

B. Assume that the bonds yield-to-maturity immediately changes from 6% to 6.1% (the bond still has 20 years to maturity).

i. Estimate the % change in the bonds price using

modified duration

ii. What is actual bond price (at YTM = 6.1%), and the % price change (from YTM = 6% to 6.1%)?

C. Assume that the bonds yield-to-maturity immediately changes from 6% to 7% (the bond still has 20 years to maturity).

i. Estimate the % change in the bonds price using modified

duration

ii. What is actual bond price (at YTM = 7%), and the % price

change (from YTM = 6%)?

D. Why is the estimated % price change closer in Part B than it is in Part C? Be precise!

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