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Effective yearly discount rate

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1. A bond with 3 years of maturity with face value $10000 is paying semi~annual coupon bond with coupon rate c%|. The bond price is P. The effective yearly discount rate is 10%.

(a) Write the equation to show the relationship between c and P.

(b) When the effective yearly discount rate decreases to 9.8%, the bond price becomes 1.02P. Estimate the duration of this bond.

(c) From the duration estimated from the last part, Perco claimed that the price change is not a legitimate price change. Do you agree? Explain.

Reference no: EM133057389

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