On Jan 1, 2012, FIN307 is considering the newly issued 10-year AAA corporate bond, which is due Jan 1, 2022, with a coupon rate of 6% per year paid every 6 months. The bond is traded at par. Suppose the market interest rate declines by 100 bps (i.e., 1%), what is the duration (before interest rate change) and the effect of the market interest decline on the bond price? Hint: if your calculator does not have a build-in function for duration, please go to excel and do the calculation manually by setting up 6 columns for t (=1, 2, 3..20), DF(discount factor or 1/PV factor), CF (cashflow), PV (present value of CF=CF*DF), w(weight=PV/sum of PV or P₀), and t*w. Then sum up all t*w, then divide by 2 (because here coupon is paid semiannually).

Do NOT show work with Excel, show work with calculator, formulas etc NOT excel. Need to understand for exam.