A bond market trades coupon bonds and zero-coupon bonds with various maturities. (a) Calculate the prices of
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A bond market trades coupon bonds and zero-coupon bonds with various maturities. (a) Calculate the prices of the following coupon bonds at a yield to maturity of 8%.
(i) A 4-year maturity coupon bond making 10% annual coupon payments with a face value of £1,000
(ii) An 8-year maturity coupon bond making 6% annual coupon payments with a face value of £1,000
(b) Calculate Macaulay duration and modified duration for both coupon bonds in (a).
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