Consider an eight year, 13% annual upon bond with a face value of $100. The bond is trading at a rate of 10%.
a. what is the price of the bond?
b. if the rate of interest increases 1%, what will the bond’s new price be?
c. Using your answers to part (a) and (b), what is the percentage change in the bonds price as a result of the 1% increase in interest rates?
d. What is the duration of if the maturity increases to 17 years
e. What is the duration of if the maturity increases to 18 years
f. What is the duration of if the maturity increases to 19 years