1. Suppose today's 10-year rate is 9 percent. Today's 4-year rate is 7 percent. Estimate the 6-year forward rate in four years if the 10-year rate has a .3 percent liquidity premium.
- Consider a 30-year corporate bond paying 9 percent semi-annual coupon. The current yield to maturity is 11 percent.
- Find the modified duration.
- Refer to part a. If the interest changes by 25 basis points, what is the exact change in price?
- Refer to part b. If the interest changes by 25 basis points, what is the approximate change in price?
Consider a 30-year corporate bond paying 8 percent semi-annual coupon. The current yield to maturity is 10 percent. Find the approximate bond's modified duration by using changes in the interest rate up and down by 5 basis points.