Consider an annual bond with a coupon rate of 10 percent, four years to maturity, and a

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Consider an annual bond with a coupon rate of 10 percent, four years to maturity, and a current price of $1,100. Suppose the yield on the bond suddenly increases by 200 basis points.

a) What is the modified duration of the bond (before the price increase)? years.

b) Using the modified duration (from part a), what is the approximate new price of the bond?

c) What is the exact new bond price using the usual bond pricing formula (you can use either a financial calculator or excel for this part)?

Related Book For answer-question

Fundamentals of Investments Valuation and Management

ISBN: 978-0077283292

5th edition

Authors: Bradford D. Jordan, Thomas W. Miller

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Posted Date: Apr 22, 2022 07:08 AM

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Consider an annual bond with a coupon rate of 10 percent, four years to maturity, and a

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Fundamentals of Investments Valuation and Management

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