What percentage change will there be in the bonds, Financial Management

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What percentage change will there be in the bonds

1. Consider the following yield curve.

Maturity . Yield

1 year 7%

2 years 12%

3 years 10%

What are the forward rates for Years 2 and 3?

The forward rate for year 2 is (1+f2)=

The forward rate for year 3 is (1+f3)=

2. Suppose that you bought a bond at 950.26. This investment returns 72.73 in Year 1, 66.12 in Year 2, and the rest of the value in Year 3. What is the duration?

3. A bond has a YTM of 8.5% and duration of 5.25 years. If the market yield changes by 31 basis points, what percentage change will there be in the bond’s price?

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