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  3. (a) calculate the duration of a 4-year bond that h

(a) Calculate the duration of a 4-year bond that has a face value of $100...

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Finance

(a) Calculate the duration of a 4-year bond that has a face value of $100 and that pays semi-annual coupons at a rate of 8% per annum. The interest rate is 10% with continuous compounding.

(b) Now suppose the interest rate is 10.1%. Calculate the price of the bond using a first order approximation.

(c) How accurate is this approximation?

(d) How accurate is the first order approximation if interest rates are now 14%?

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