Consider the sale of a bond at a face value of US$1,000, with six years to maturity
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Question:
Consider the sale of a bond at a face value of US$1,000, with six years to maturity and a coupon rate of 7% per year.
Required:
i) Calculate the duration of the bond. (4 points)
ii) What is the modified duration of the bond? (3 points)
iii) If the yield to maturity of the bond increases to 8%, what happens?
to the duration of the bonds? Why does this change occur? (4 points)
iv) Why must the duration of a coupon bond always be less
than the time to its maturity date? (3 points)
Related Book For
Financial Accounting an introduction to concepts, methods and uses
ISBN: 978-0324789003
13th Edition
Authors: Clyde P. Stickney, Roman L. Weil, Katherine Schipper, Jennifer Francis
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