Question

Bond	Period	Year	Coupon	Price	YTM	Spot	Forward
A	1	0.5	4.8	101.78	1.22%	1.22%	1.22%
B	2	1	5.4	102.25	3.10%	3.12%	5.05%
C	3	1.5	6.2	101.34	5.26%	5.35%	9.87%
D	4	2	8.1	106.4	4.71%	4.76%	3.01%

The table above reports the prices and coupons of four bonds, as well as some implied rates. The coupons are paid semiannually. The rates in the table are APR (Answers should also be APR.) Forward rates for a period start a period before and continue for this period only: for example, the missing forward rate in the second row is the forward rate between 6 months from now and 12 months from now, the 9.87% forward rate in the third row is the forward rate between 12 months from now and 18 months from now

Q5- What is the duration of Bond D? What change in its price will increase its yield to maturity by 1% per annum? Compute the price two ways: using the duration and discounting the cash flows. Explain the difference, if any, and its sign

Answer 1