Question: Question 2: Consider the following: Fixed-rate Bond Fixed-rate Note Price 107.18 100.00 Yield to maturity 5.00% 5.00% Periods to maturity 18 8 Modified duration 6.9848

Question 2:

Consider the following:

Fixed-rate Bond Fixed-rate Note
Price 107.18 100.00
Yield to maturity 5.00% 5.00%
Periods to maturity 18 8
Modified duration 6.9848 3.5851

A. For an increase in interest rates of 100 basis points, determine the change in value for the fixed-rate note. Show your work.

B. For an increase in interest rates of 100 basis points, determine the change in value for the fixed-rate bond. Show your work.

C. Which of the two fixed-rate securities are more sensitive to increases interest rates? Why?

D. What would be the most appropriate course of action to take given interest rates are expected to rise? Explain carefully.

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