A bond has the following terms:

a. What is the current price of the bond if comparable yields are 7% per annum? What is the current yield given the price of the bond?

b. If you expect the bond to be called at the end of the year, what would be the maximum price you should pay for the bond?

c. Is there a reason to expect that the bond will be called?

d. Explain carefully why the concept of duration is useful. What is meant by the convexity of a bond? Why might you be willing to pay more for bonds with high convexity

A bond has the following terms: Annual coupon $100 (to be paid annually) Maturity 15 years Face value $1000