DURATION

EXERCISE $3$

Philip Morris has issued bonds that pay annually with the following characteristics.

$\backslash$table$[[$Coupon$,$Yield to Maturity,Maturity,Macaulay Duration$],[8\%,8\%,15$ years,$10$ years$]]$

a$.$ Calculate modified duration using the information above.

b$.$ Explain why modified duration is a better measure than maturity when calculating the bond's sensitivity to changes in interest rates.

c$.$ Identify the direction of change in modified duration if:

i$.$ The coupon of the bond were $4\%,$ not $8\%.$

ii$.$ The maturity of the bond were $7$ years, not $15$ years.