A 5-year bond with a yield of 11 continuous compounded pays

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Question: A 5-year bond with a yield of 11% (continuous compounded) pays an 8% coupon at the end of each year.

(a) What is the bond's price?

(b) What is the bond's duration?

(c) Use the duration to calculate the effect on the bond's price of a 0.2% decrease in its yield.

(d) Recalculate the bond's price on the basis of a 10.8% per annum yield and verify that the result is in agreement with your answer to (c).

Reference no: EM13596219

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