A 5-year, $1,000 face bond with a 3% coupon is currently selling with a 4% YTM (yield to maturity). The purchase price is 955.48.

1. Immediately after you purchase the bond, the reinvestment rate in the market drops to 3%. What is your realized yield on your bond investment?

a) 3.94 % b) 4% c) 4.12% d) 4.56%

2) What is the duration of the bond?

a) 4.71 b) 4.83 c) 4.95 d) 5

3) If market yields were to drop by 1%, what is the approximate percentage change in the price you would expect, based on the bonds duration?

a) 4.71 % B) 4.83%. C) 5.12%. D) 4.95%

4). How long should you hold the bond, if you want to earn the 4% YTM that you thought you would get when you bought the bond?

A) 4.83 years B) 4.71 years. c) 4.95 years d) 5 years

5) Assume that market yields rise by 40 basis points. What do you expect to happen to the bonds price, using modified duration?

a) $36.75. b). $28.99. C) $45.12 d) $17.31