First part: Xetra is a large leading investment bank. It has a portfolio as a part of its assets, which consists of $100 million of 30-year, 8 percent coupon bonds that sell at par value. The duration of these bonds is 12.1608. The risk manager asks one of his staff to report some calculations showing the possible impact of interest rate changes on the value of this portfolio, and through these calculations the manager wants to know the amount of the error between the duration prediction and the actual market values if market yields change immediately by 0.10 percent? As well as if market yields change immediately by 2.00 percent? Second Part: for the same bank, suppose that there is a five-year, 15 percent annual coupon bond with a face value of $1,000. The bond is trading at a rate of 12 percent. The manager wants to know the following regarding this bond: A. What is the price of the bond?

B. If the rate of interest increases 1 percent, what will be the bonds new price? C. Using your answers to parts (a) and (b), what is the percentage change in the bonds price as a result of the 1 percent increase in interest rates? D. Repeat parts (b) and (c) assuming a 1 percent decrease in interest rates. E. What do the differences in your answers indicate about the priceinterest rate relationships of fixed-rate assets?