Setup A: Bill, a plumber, owns a bond with a $1,000 par value, a 7.00 percent coupon rate paid annually, three years remaining to maturity, and a 9.00 percent yield to maturity. When the government releases new economic numbers tomorrow, Bill believes the interest rate on this type of bond will fall 150 basis points and there will be a parallel shift in the yield curve.

1. What is the bonds price to two decimal places?
2. What is the bonds value in dollars and cents (if sold today, how much does Bill get)?
3. What is the bonds duration to two decimal places?
4. What is the bonds modified duration to two decimal places?
5. What is the bonds current yield to two decimal places?

If Bill is correct and the yield to maturity falls 100 basis points tomorrow.

6. What will be the bonds new yield to maturity to two decimal places?
7. Using modified duration, what will be the new bond price to two decimal places?

If Bill is wrong and the yield to maturity increases 75 basis points tomorrow.

8. What will be the bonds new yield to maturity to two decimal places?
9. Using modified duration, what will be the new bond price to two decimal places?