A 3-year maturity bond has a 6% coupon rate, paid annually. The bond sells at par value $1000.
(a) What are the Macauly duration, modified duration and dollar duration of the bond? How do you interpret modified duration and dollar duration of a bond?
(b) Find the actual price of the bond if the interest rate immediately increases from 6% to 7%.
(c) What price would be predicted by the duration rule?