Assignment Help-Bonds

Consider a $1,000 Treasury bond paying a semi-annual coupon of 10 per cent p.a. and currently selling at par in the secondary market, and with a maturity date of 11 years.

(a) What is the duration, modified duration and dollar duration of this bond?

(b) What will be the estimated price change on the bond if interest rates increase by 0.10 per cent (10 basis points)? If interest rates decrease by 0.20 per cent ?.

(c) What would be the actual price of the bond be under each interest rate change in part (b) using the traditional present value bond pricing techniques? What is the amount of error in each case? Why does this error occur?

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