You own a 9 year bond that has a 3% semi-annual coupon, a 6% semi-annual yield to maturity and a modified duration of 7.7.  If you plan on holding the bond for 3 years, what is your duration gap? Also, which do you think is the larger risk for this bond as a result of interest rate changes, market price risk or coupon reinvestment risk, and why?

Answer rating: 100% (QA)

To calculate the duration gap you subtract the time horizon from the modified duration Duration Gap ... View the full answer