Bank A issues a new bond with 3% coupon rate, 5% yield and $100 par value. The coupon is paid annually. The bond has three years to maturity.
(a) What is the Macaulay duration of this bond? What is the modified duration of this bond?
(b) What is the price value of a basis point for this bond?
(c) Assume that the yield increases by 10%. Use duration to estimate the new price. Is the estimation precise? Why?