Philip Morris has issued bonds that pay annually with the following characteristics: a. Calculate modified duration using

Question:

Philip Morris has issued bonds that pay annually with the following characteristics:

a. Calculate modified duration using the information above.
b. Explain why modified duration is a better measure than maturity when calculating the bond's sensitivity to changes in interest rates.
c. Identify the direction of change in modified duration if:
i. The coupon of the bond were 4%, not 8%.
ii. The maturity of the bond were 7 years, not 15 years.