Problem I: A 20-year bond with a 7.50% semi-annual coupon bond was sold at par 10 years ago. Now the 10-year semi-annual payment corporate bond has a required return (or YTM) of 8.25%. Calculate the bond's market price. The par level of bonds is $1000.
Problem II.
a) What is the duration of a 2-year bond with an 8.5% semi-annual coupon and a required return (YTM) of 8.00%?
b) What is the duration of a 20-year zero-coupon bond with a required return (YTM) of 8.00%?
c) You expect a sudden decrease in market rates due to a macroeconomic change. Would you rather have in your portfolio the item from a) above or b) above?
Which item would you prefer, and specifically explain the reasons why?