Assume that you own a $1million par value corporate bond that pays 7% in coupon interest (3.5% semiannual), has 4 years remaining to maturity, and is immediately callable at par. Its current market yield is 7% and it is priced at par. If rates on comparable securities fall by more than 40 basis points (0.2% semiannually), the bond will be called

(a)Calculate the bonds price if the market rate increases by 50 basis points (0.25% semiannually) using the present value formula from

(b)Calculate the bonds effective duration assuming a 50 basis-point increase or decrease in market rates: