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What is the price of the bond

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A bond with three years to maturity pays an annual coupon of 5.5% and has a face value of 100. The yield curve is flat at 3%, i.e. YTMs of zero-coupon bonds of all maturities are at 3%. The next coupon will be paid a year from now and the last coupon is paid together with the principal. In questions 9 to 12 assume that the default risk of the bond is similar to the default risk of the zero-coupon bonds that construct the yield curve.

1.

A) What is the price of the bond?

B) What is the modified duration of the bond?

C) Assume that interest rates go up. Use the modified duration to approximate the price of the bond given that the bond now has a yield to maturity of 4%.

Reference no: EM133111530

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