urgent

Bond A 15 years; 6% annual coupon ytm 4%

Bond B 20 years; 7% annual coupon ytm 10%

Bond C 10 years; 5% annual coupon AA-rated

Bond D 10 years; 5% annual coupon B-rated

Bond E 30 years; 4% annual coupon

a) What is the effective duration (ED) of Bond A for a 100bp (50+/50-) change in yield? (9 marks)

b) If you expect the interest rate to drop by 60bp, what is the percentage change in the price of Bond A as estimated by effective duration? (3 marks)

c) If the interest rate rises, will the actual price of Bond B be higher or lower than the estimated price based on duration approximation? ONLY brief verbal explanation is required. (2 marks)

d) Assume Bond C and Bond D are identical except for their bond ratings. Without any calculation, determine which bond should you purchase (Bond C or Bond D) now if you expect the interest rate to go down in the coming period. Explain briefly.