You are currently considering purchasing a government-issued bond offering a coupon-rate of 10% per

year paid semi-annually. The bond, which has a face value of NOK 1,000, matures in four years, and its

current yield-to-maturity is 8% per year.

Please answer the questions below and show all calculations in arriving at your answers:

(a) 12.5 points Calculate the bond's current market price. Is the bond trading at a premium or

discount from its face value? Briey explain.

(b) 12.5 points Calculate the bond's duration. Briey explains the economic meaning of duration.

(c) 12.5 points Assume that the yield-to-maturity increases to 10% (from the previous 8% level).

Explain how this yield-change affects the bond's duration.

(d) 12.5 points Assume that the NOK 1000 face-value, government-issued bond was priced as a

zero-coupon bond yielding 8% per year. Calculate the zero-coupon's market price as well as

its duration.