Question: QUESTION TWO The value of a consol bond is given by the formula below: Show that this formula can be simplified to: = Hence, calculate

QUESTION TWO

  1. The value of a consol bond is given by the formula below:

Show that this formula can be simplified to:

=

Hence, calculate the value of a consol bond that pays K12,000 per year and was

bought at a discount rate of 8%.

  1. Calculate the Macaulay duration and the modified duration of a three-year bond with a face value of K1,00 that pays a 11% coupon semi-annually and has a yield to maturity of 6%. Interpret your answers.

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