Question 5: A 4-year bond pays a 5% coupon at the end of each year and offers a gross redemption yield of 4%. A coupon has just been paid and the bond will be redeemed at 100 per 100 nominal. (1) Calculate the bond's price (to 2 decimal places). (20 Marks) (ii) Calculate the bond's duration and, using this value, calculate its volatility (modified duration) and explain your results. (20 Marks) Page 4 of 5 Semester 1 - 2021/22 C31CM (iii) Use the volatility to estimate the effect on the bond's price of a 1% decrease in its yield, and hence calculate its new price (to 2 decimal places) and explain your results. (20 Marks) (iv) Recalculate the bond's price on the basis of a 3% gross redemption yield (to 2 decimal places). (20 Marks) (v) Explain why your results in parts iii) and iv) are different. (Word limit: maximum 450 words) (20 Marks)