Pete plans to buy an 8 percent, $1,000 par bond that matures in three years and the interest is paid semiannually, and the bonds YTM is 10 percent.

1. Calculate the bonds duration.

(b) Calculate the bonds modified duration.

(c) Assuming the bonds YTM declines from 10 percent to 9.5 percent, calculate the bonds price change. Explain your answer.

(d) Explain how changes in YTM affects the bonds market price risk and reinvestment risk.