1. You are holding a 30-year, 3 percent annual coupon, $1,000 bond that sells at 2% discount. (a) What will be effect of the bonds new price if market yields fall by 0.05%? What will be the bonds price if the market yields fall by 2%?

(b) The duration of the bond is 20.1885. What are the predicted bond prices in each of the two cases using the duration rule? What is the amount of error between the duration prediction and the actual market values?