Find the fair value of the bond

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Reference no: EM13271640

Consider the following bond with a Baa rating that currently trades in the secondary market:
Par value: 1000000
Coupon: 8.5% paid annually
Maturity: 2 years
Yield on other 2 year Baa bonds: 6%
i. Find the fair value of the bond
ii. What would the YTM of this bond be if you purchase at its fair value today?
iii. Find the duration and modified duration of this bond. Examine whether the modified duration is fairly accurate in reflecting the bond's senstivity to a 1% change in interest rate.

Reference no: EM13271640

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