i. Calculate the value of Macaulay's duration for a 10-year, $1000 par value bond purchased today at
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Question:
i. Calculate the value of Macaulay's duration for a 10-year, $1000 par value bond purchased today at a yield to maturity of 14% and a coupon rate of 10%.
ii. From the answer in (i) calculate the modified duration of the bond assuming the prevailing interest rate is still 14%.
iii. Now suppose the market interest rate on comparable bonds falls to 13 percent. What will be the approximate percentage change in the bond price.? (Hint: use the modified duration for your computation in (ii))
iv. Given the information in (i), did the bond sell at a discount or premium?
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