The yield curve is currently flat at 3%. Consider a 2-year Coupon Bond with a coupon rate of 4% and annual coupons payments.
1) What is the price of the 2-year bond(per $1,000 par value)?
2)What is the duration of the bond?
3) The yield curve shifts up in parallel by 1% to a level of 4%. Based on the duration, what is the new price of the bond?
4) You decide to invest $2,000 to this bond, and $1,000 to a 1-year zero coupon bond. What is the duration of the portfolio?