Q8: Chandrika buys a bond for $601.27. The only thing we know about the bond is its Macaulay duration which is 3.462. The current effective annual rate is 1.00%. 5 marks each.

a) Using the first order Macaulay price approximation, how big a change in interest rates would it take to make the price of this bond go up by $1?

b) Using the first order Modified price approximation, how big a change in interest rates would it take to make the price of this bond go up by $1?