A five-year bond with a yield of 10 continuously compounded, Finance Basics

A five-year bond with a yield of 10 continuously compounded

Question: A five-year bond with a yield of 10% (continuously compounded) pays a 7% coupon at the end of each year.

What is the bond's price?

What is the bond's duration?

Use the duration to calculate the effect on the bond's price of a 0.2% decrease in its yield.

Recalculate the bond's price on the basis of a 9.8% per annum yield and verify that the result is in agreement with your answer to (c).

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Finance Basics: A five-year bond with a yield of 10 continuously compounded

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Finance Basics: A five-year bond with a yield of 10 continuously compounded

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