Q1. A GoI bond with 7.56% coupon per annum and face value of Rs. 1000, maturing on April 1, 2016 is available at a yield of 6.78% per annum on April 1, 2014. Assume the bond pays annual coupons and the next coupon is due exactly one year from today (i.e. April 1, 2014). Required: a. Price of the bond i. Find the PV of cashflows in year 1 ii. Find the PV of cashflows in year 2 iii. Find the Price of the bond b. Duration of the bond i. Find the PV of (CF*t) in year 1 ii. Find the PV of (CF*t) in year 2 iii. Find the Duration of bond c. How much would the price change (accurate up to one Paisa, using the concept of Duration alone) if the yield increases by 20 basis points? d. What is actual price change (accurate up to one Paisa) if the yield increases by 20 basis points? i. Find the PV of cashflows in year 1 with new yield ii. Find the PV of cashflows in year 2 with new yield iii. Find the Price of the bond with new yield e. Using the above answers explain in your own words how the concept of duration is useful in bond valuation.