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At the end of June 2019 a UK corporate bond has an annual coupon rate...

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Finance

At the end of June 2019 a UK corporate bond has an annual coupon rate of 4%, par (face) value of 5,000 and will mature in June 2023 (assume 4 years of coupons). Similar UK bonds have an annual redemption yield of 5%.

(a) Using the data given above and assuming annual coupons, calculate the value of the corporate bond. (4 marks)

(b) Calculate the duration of the UK corporate bond assuming annual coupons. (5 marks)

(c) Assume annual interest rates decrease by 1%. What will be the approximate percentage change in the value of the UK bond assuming annual coupons and annual discount rate? (4 marks)

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