a. Calculate the price and duration for the following bond when the going rate of interest is 2%. The bond offers 1.75% coupon rate, matures in 3 years and has a par value of $1,000. Show full calculations and fill the table below.
YR PV of $ 1 Bond Cash Flows PV (Cash Flows) Year * Present Value of Cash Flow
1
2
3
3
Total
Price=
Duration
2. b. What would be the new price if the market rate of interest rises to 4%? Show by using the duration only and show all calculations.
2. c. What would be the new price if the market rate falls to 1.75 %.? Explain and support your answer.