An investment manager is considering which of two bonds to purchase . The first bond is a new type of bond called a peak

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An investment manager is considering which of two bonds to
purchase . The first bond is a new type of bond called a peak
intermediate term coupon ( PIT - C ) bond . It is a 5 - year bond
with a $ 1000 face or par value . Coupon / interest payments are
made annually but increase over time . The coupon interest rate is
2 % in year 1,4 % in years 2 and 3 and 6 % in years 4 and 5. The
bond pays the face value at maturity . The yield to maturity ( YTM
) on the PIT-C bond is 5 % . Given this information :
1/ Calculate the duration of the PIT bond . Show your
calculations.
2/ . Alternatively , the investment manager is considering
investing in a more traditional corporate bond with a 6 - year bond
with a duration equal to 4.23 years . Which bond , the PIT - C or
the corporate bond , has more interest rate risk ? Briefly explain
how you know .
3/ . Currently , some Wall Street analysts are expecting
interest rates to rise by 75 basis points in the near future .
Using duration , calculate the change in the price of the PIT - C
bond if interest rates rise by 75 basis points . Show your
work.