Ron Carr

7.Ron Car is an income investor who has a relatively low risk tolerance. He is considering the purchase of a $1,000 face value bond with the following characteristics:

Coupon: 4 percent

Coupon payments per year: one

Maturity: five years

Current market interest rate: 8 percent

Yield to maturity: 8 percent

a.What is the bonds current price?

b.What is the bonds modified duration?

c.Based on your answer to the previous question, what will happen to the value of the bond if interest rates increase by 1 percent?