Assume the following information about a Treasury bond: Coupon Rate: 7%; maturity: November 15, 2002; settlement date: September 13, 2000; last coupon paid: May 15, 2000; yield: 6.75%; nominal value: $100. Coupon frequency and compounding frequency are assumed to be semiannual.

1. Compute the accrued interest, the (dirty) price, the clean price and the modified duration of this bond.

2. Using the modified duration, what is the approximate percentage change in price for a 25 basis point change in yield?

3. Find the price if the yield is 7%. Why is the total cost not equal to par? Find the price if the yield is 6.5%. Did the price change by more or less than was predicted? Why?