a) A semiannual coupon bond has a coupon rate of 6.5%, with a par value of RM 1000. The bond has remaining 8 years to maturity and a yield to maturity of 6.15%. Estimate the likely percentage change...

a) A semiannual coupon bond has a coupon rate of 6.5%, with a par value of RM 1000. The bond has remaining 8 years to maturity and a yield to maturity of  6.15%. Estimate the likely percentage change in this bond price if the market yield suddenly increases to 7.5%?

b) You have collected the information of the yield curve as shown below:

Maturity    1-year        2-year           3-year        4-year       5-year

Yield          6.20%        6.35%          6.50%         6.75%       6.80%

Assuming that the pure expectations theory is the correct theory of the term structure, forecast the

(i)the 3-year interest rate next year; and

(ii)annual interest rate after 2 years

c) Briefly discuss four (4) possible factors that might affect your forecast accuracy in part (b) above.