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A five-year bond with a yield of 11% (compounded annually) pays an 8% coupon at the end of each year. (a) What is the bonds

  1. A five-year bond with a yield of 11% (compounded annually) pays an 8%

    coupon at the end of each year.

    1. (a) What is the bonds price?

    2. (b) What is the bonds duration?

    3. (c) Use the duration to calculate the effect on the bonds price of a 0.2% de-

      crease in its yield.

    4. (d) Recalculate the bonds price on the basis of a 10.8% per annum yield and

      verify that the result is in agreement with your answer to (c).

Face Value is $100 and five-year bond

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