2. Bill is a plumber who owns a Caterpillar bond with a $1,000 par value. The Caterpillar bond has a 4.00 percent coupon rate paid annually, three years remaining to maturity, a 6.00 percent yield to maturity, and a duration of 2.88 years. When the government releases new economic numbers tomorrow, Bill believes the interest rate (yield to maturity) on the Caterpillar bonds will increase by 80 basis points.

Assume Bills forecast is correct and the interest rate (yield to maturity) on the Caterpillar bonds increases by 80 basis points tomorrow.

1. What will be the Caterpillar bonds new yield to maturity to two decimal places? Explain your answer.

2. Using modified duration, what will be the new price of Caterpillar bonds to two decimal places? Explain your answer.