Homework answers / question archive / Suppose that the term structure is flat at 1% (APR, compounded semi-annually)

Suppose that the term structure is flat at 1% (APR, compounded semi-annually)

Finance

Share With

Suppose that the term structure is flat at 1% (APR, compounded semi-annually).

Find the market price of $100 face value two-year Treasury note with a 1% annual coupon rate that is paid semi-annually. (That is, the bond pays $0.50 in interest after 6, 12, 18 and 24 months and the principal of $100 after two years.)

Find the duration of the bond. You may either:

1)compute the duration exactly using the formula with Excel or a calculator .

Find the change in price of the bond if all rates fall to 0.80%. You may use any reasonable approximation you wish.