Suppose that a $1000 par value bond has 4 years and 3 months left until maturity. It has a coupon rate of 6% that is paid in semi-annual interest payments, and it has a required rate of return equivalent to 5%.
a. What is the intrinsic value of the bond?
b. A 9% annual coupon bond will mature in 5 years, and it has a YTM of 6%. What is the duration of this bond?
c. Using the bond information from the prior problem, calculate the modified duration of the bond.
d. Based on your answer from the prior problem, what percentage change in the market price of this bond would you expect to see for a 1% increase in market interest rates?