Assume the term structure of interest rates is flat at 10%. Bond B is a perpetuity with annuities of $10 per year with first payment in one year's time. Determine the price of Bond B and its Macaulay duration. Approximate the relative change in bond price if term structure shifts up in parallel manner by 100 basis points (i.e. 1%).

Answer rating: 100% (QA)

To determine the price of Bond B we can use the formula for the present value of a perpetuity Price ... View the full answer