Consider a 2-year, risk-free bond with a coupon rate of 6% (annual coupons) and a face amount of $1,000.

If the yield on the bond is 6% (P = $1,000),

i. What is the Macaulay duration?

ii. If the yield increases to 7% immediately, what does the duration approximation predict will be the percentage change in the bond price?

iii. If the yield increases to 7% immediately, what is the actual percentage change in the bond price?