a. An investor buys a 4% annual coupon payment bond with three years to maturity. The bond has a yield-to-maturity of 10%. The par value is $1000.

i. Determine the market price of the bond. ii. Calculate the bonds duration and modified duration.

b. A bond portfolio consists of the following three annual coupon payment bonds. Prices are per 100 of par value.

i. Determine the weight of each bond in the bond portfolio.

ii. Calculate the bond portfolios modified duration.

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Price Bond Maturity Market (years) Value X 6 171,800 Y 10 163,600 z 15 150,000 Coupon (% 4.00 4.40 7.00 Yield-to- Maturity (%) 6.95 85.90 81.80 100.00 Modified Duration (years) 5.05 7.56 9.11 6.99 7.00