Yesterday you bought a three-year, $1,000 bond with a 7% coupon (paid annually) and a 5% yield to maturity. Today the yield on similar bonds rose to 6%.

1.If market interest rates remain at 6% until the bond matures, what return (%) will you actually realize on your bond investment?

2.What was the duration of the bond on the acquisition date?

3.How long should you hold the bond to earn the 5% yield-to-maturity you thought you would earn?

4.Using the data available on the acquisition date of the bond, if bond yields were to fall by 40 basis points, what would be the change in the bonds price, using the modified duration formula?