Consider a three-year 10 percent coupon bond with a par value of $100. Assume that coupon payments of $5 are made every six months. Suppose the yield on the bond is 12% per annum with continuous compounding.

- What is the bonds duration?

- Use the duration to calculate the effect on the bonds price of a 0.1% increase in its yield

- Recalculate the bonds price on the basis of a 12.1% per annum yield and verify that the result is in agreement with your answer to the question above.