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A two-year corporate bond has a face value of $1,000 and an annual coupon rate of 10%. It is now traded at an annual

A two-year corporate bond has a face value of $1,000 and an annual coupon rate of 10%. It is now traded at an annual yield of 10%, and the coupon is paid every six months. (a) (10pt) Find the price of the bond. (b) (10pt) Find the duration of the bond. (c) (10pt) Use the duration to estimate how the bond price will change if the yield rises by 1% tomorrow.

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Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe

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