Question 2:

Tesla Inc, USA recently tapped on the bond market for a 5-year bond. It pays an annual coupon of 7% p.a. for sovereign and institutional investors to diversify its funding base. The prevailing market sentiment of similar bonds has a yield to maturity at 5% p.a. You are to perform the following:

1. Calculate the bond duration

2. Calculate the modified duration of the bond

3. Calculate the duration estimation approach considering the percentage change of

   bond price if r decreases to 4.5%.

4. Calculate using the duration estimation approach of the new bond price at r= 4.5%

5. Calculate the percentage of error using duration estimation approach

Based on the above quantitative analysis and calculations, discuss and contrast with the use of duration method with other conventional method in valuation of bonds.