Answer the following questions using this bond: face value of $1000, Semi-Annual interest paying with a coupon rate of 7%, maturity in 4 years, and yields on other similar bonds are 8%, so todays price is $966.34.

1. If interest rates go up by 1%, calculate the actual price change, i.e. what would be the price of this bond (remember it has SEMI-ANNUAL interest payments) if the yields on similar bonds were now 9%. What would then be the percentage change in price from when rates were 8% and the bonds price was $966.34.

2. Using the Approximation formulas, calculate the modified duration and convexity of this bond for a 1% change in interest rates.

3. Estimate the price change of this bond for a 1% increase in yields using your answers from Question #2 for both modified duration and convexity. Compare this estimate to the actual change in price from your answer in Question #1.

4. Using the same bond as Question #1 (face value of $1000, Semi-Annual interest paying with an annual coupon rate of 7%, maturity in 4 years) complete the table below with the prices for the different yields. Then calculate the % change in price from one yield to the next, i.e. the % change in price from yields falling from 7% to 6%, or from yields falling from 6% to 5%, etc. Calculate the % change to at least 2 decimal places.

Yield	Price	% price change
4%
5%
6%
7%	$1,000.00	N/A
8%
9%
10%

5. Given your answers to Question #4, what is the difference between the % price changes when the yields falling versus when the yields rising?

6. Explain why coupon bonds exhibit the differences in the % price changes you saw in Question #5.