Bonds a and b have the same time to maturity

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Bonds A and B have the same time to maturity of 2 years. The coupon rate for Bond A is 6%, while the coupon rate for bond B is 10%. Par value is $1,000.

a) (10 points) Which bond has more price risk. Explain.

b) (5 points) Calculate Macaulay's duration for bond A assuming that its yield to maturity is 6%.

c) (10 points) Explain the meaning (interpretation) of modified duration.

(5 points) If the market yield changes by 80 basis points, using duration, what is the percentage change in bond A's price?

Reference no: EM13878771

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