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Question 20. Consider a 2-year bond. The coupon rate of the bond is 10%, and the bond pays coupons semiannually. The bond is selling at

Question 20. Consider a 2-year bond. The coupon rate of the bond is 10%, and the bond pays coupons semiannually. The bond is selling at a yield to maturity of 8.0% annually, or 4.0% semi-annually.

a. What is the duration of the bond? (12 points)

b. If the semi-annually yield changes from 4.0% to 5.0%, what is the predicted change in the price of the bond using duration? (8 points)

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