Question 1 A bond has a face value of 100 with a 6% coupon rate. The maturity is 4 years. The coupon payment is made at the end of each period. The interest rate is currently 5%. a. Calculate the current price of the bond. (10%) b. Suppose you buy the bond now and sell the bond in one year at the price of 105, what is your rate of return. (10%) c. Calculate the Macaulay Duration of the bond. (40%) d. Based on your answer in question c, what would the price of bond be if the interest increases by 2% (hint: Percent change in market value of securityz-Ai x 14i, where D is Macaulay Duration)? Do you think Macaulay's Duration analysis underestimate or overestimate the interest rate risk and why? (40%) D +