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Suppose the Treasury issued today a four year bond with a notional of $ 1 0 0 and a continuously compounded yield of 5 %
Suppose the Treasury issued today a four year bond with a notional of $ and a continuously compounded yield of that pays a coupon at the end of each year.
a What is the price of this bond?
b What is the duration of the bond?
c If the yield decreases bps what should be the approximate change to the price of the bond?
d Suppose that the Federal Reserve just announced a revised monetary policy that causes the Treasury yield curve to change. Discuss the impact of such a change to the yield and price of this bond. Note that a change in the monetary policy may not be reflected in the same way throughout the curve. For example, if the central bank increases the money supply the result is typically a reduction to the shortterm interest rates.
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