Consider a five-year, 8 percent annual coupon bond selling at par of $1,000.
1. What is the duration of this bond?
a. 5 years.
b. 4.31 years.
c. 3.96 years.
d. 5.07 years.
e. Not enough information to answer.
2. If interest rates increase by 20 basis points, what is the approximate change in the market price using the duration approximation?
3. Using present value bond valuation techniques, calculate the exact price of the bond after the interest rate increase of 20 basis points.
These short questions belong to Finance and the questions deal with a 5 year, 8% coupon bond selling at $1000. The duration of the bond, the price of the bond based on the increase in interest rates needs to be calculated.
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