A bond has a face value of $1000,$ a coupon rate of $8\%,3$ years until

maturity and a yield to maturity of $7\%.$

a$)$ What interest payments do bondholders receive each year? $(3$ points$)$

b$)$ At what price does the bond sell? $(10$ points$)$

c$)$ Calculate bond duration. Duration$=$t$=1$T

$\{$t$*[$cash flowt$/(1+$YTM$)$t$]\}/$price of

bond$\}$

where t is time to maturity and YTM stands for yield to maturity. N$.$B: You need to

show how you have calculated duration. A single value will not suffice.

$(10$ points$)$

d$)$ Assuming duration is $2\mathrm{.}78,$ find the change in the price of the bond if the market

yield changes from $7\%$ to $6\mathrm{.}5\%.$ You can use either modified duration or the

standard duration formula. $10$ points