Question: A four - year option - free bond has a par value of R 1 0 0 0 , has an annual coupon rate of

A four-year option-free bond has a par value of R1000, has an annual coupon rate of 9 percent and trades at a yield to maturity of 7 percent. The current bond price is R1067.74. The yield to maturity is expected to increase by 100b.p.
Calculate the duration of the bond. (12 marks)
Assuming that the bonds convexity is 195, use duration-with-convexity to calculate the price of the bond at the new yield. (4 marks)
Show all workings.

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