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Question 2 (15 points) a ii. (7p) Calculate Duration on a $1,000 Ten-Year 9% Coupon Bond When the Interest Rate (discount rate) is 7 %.
Question 2 (15 points) a ii. (7p) Calculate Duration on a $1,000 Ten-Year 9% Coupon Bond When the Interest Rate (discount rate) is 7 %. Use the discounted cash method to calculate the correct price of the bond. Calculate the expected price change if interest rates fall to 6% using the duration approximation. iv. b) Consider a bond with a 7% annual coupon and a face value of $1,000. Complete the following table. (8) Years to Discount rate Correct Price Current Yiled Yield to Maturity maturity (YTM) 3 5% 4 7% 5 9% 6 7% Assume that the market price for this bond is $1,150. Is the bond is selling at par, discount, or premium value at different maturities? What relationships do you observe between YTM, current yield and coupon rate at different maturities? Compare the correct prices with the market to judge of whether the bond is overvalued, undervalued, or correctly priced at different maturities
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