Part $1$

What is the price of the bond $($in $ $)?$

Correct $$

Since market interest rates $($or yields or yield to maturity$),$ are

quoted as bond equivalent yields $($a type of APR$),$ we need to

divide the quoted rate by $2$ :

Period rate:

$r=\frac{0\mathrm{.}095}{2}=0\mathrm{.}0475$

The $6-$monthly interest payment, or coupon, is:

Coupon $=\frac{\text{C}\text{o}\text{u}\text{p}\text{o}\text{n}\text{r}\text{a}\text{t}\text{e}}{2}*$ Face value $=\frac{0\mathrm{.}08}{2}*1,000$

$=40$

Bond price:

$P=\frac{\text{C}\text{o}\text{u}\text{p}\text{o}\text{n}}{r}[1-\frac{1}{(1+r{)}^T}]+\frac{\text{P}\text{a}\text{r}\text{v}\text{a}\text{l}\text{u}\text{e}}{(1+r{)}^T}$

$=\frac{40}{0\mathrm{.}0475}[1-\frac{1}{(1+0\mathrm{.}0475{)}^4}]+\frac{1,000}{(1+0\mathrm{.}0475{)}^4}$

$=973\mathrm{.}25$

Part $2$

What is the bond's duration?

Part $3$

If yields fall by $0\mathrm{.}8$ percentage points, what is the new expected

bond price based on its duration $($in $ $)?$

Part $4$

What is the actual bond price after the change in yields $($in $ $)?$

Part $5$

What is the difference between the two new bond prices $($in

absolute $$)?$