A 5-year bond with yield of 11% (continuously compounded) pays an 8% coupon at the end of each year. (a) What is the bond's price? Discuss the formula that you are using. (b) What is the bond's duration? Show the results of your derivations. (c) Use the duration estimate to calculate the effect on the bond's price of 0.2% decrease in its yield. (d) Recalculate the bond's price on the basis of a 10.8% per annum yield and verify that the result is in agreement with your answer in (c). (e) What is the bond's convexity? Show the results of your derivations. (f) Use the duration estimate to calculate the effect on the bond's price of 2.7% decrease in its yield. 4 (g) Use both the duration and the convexity estimates to calculate the effect on the bond's price of 2.7% decrease in its yield. (h) Recalculate the bond's price on the basis of a 8.3% per annum yield and verify that the result is in agreement with your answer in (f) and/or (g). A 5-year bond with yield of 11% (continuously compounded) pays an 8% coupon at the end of each year. (a) What is the bond's price? Discuss the formula that you are using. (b) What is the bond's duration? Show the results of your derivations. (c) Use the duration estimate to calculate the effect on the bond's price of 0.2% decrease in its yield. (d) Recalculate the bond's price on the basis of a 10.8% per annum yield and verify that the result is in agreement with your answer in (c). (e) What is the bond's convexity? Show the results of your derivations. (f) Use the duration estimate to calculate the effect on the bond's price of 2.7% decrease in its yield. 4 (g) Use both the duration and the convexity estimates to calculate the effect on the bond's price of 2.7% decrease in its yield. (h) Recalculate the bond's price on the basis of a 8.3% per annum yield and verify that the result is in agreement with your answer in (f) and/or (g)