Calculate modified duration using the information

Reference no: EM131102120

1. The Clarence Corporation has issued bonds that pay semiannually with the following characteristics:

Coupon	Yield to Maturity	Maturity	Macaulay Duration
8%	8%	15 years	10 years

a. Calculate modified duration using the information provided.

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:

(1) the coupon of the bond were 4 percent, not 8 percent.

(2) the maturity of the bond were 7 years, not 15 years

d. Define convexity and explain how modified duration and convexity are used to ap- proximate the bond's percentage change in price, given a large change in interest rates.

Reference no: EM131102120

Questions Cloud

What do the authors mean by the term indian-ness : What is the reason behind the Certificate of Degree of Indian Blood (CDIB)? What is the certificate's purpose? What are some of the factors leading to the decline of cultural competency among American Indians?

Explain why we must remove the steering angle : Explain why we must remove the steering angle α from the controls of the tricycle, and place it into the tricycle's configuration (state) in order to form a valid kinematic system

The mean excess return of the index portfolio : The standard deviation of the market index portfolio is 25%. a. What is the mean excess return of the index portfolio?

Determine the force in members fg eg : Show transcribed image text The truss shown was designed to support the roof of a food market. For the given loading, determine the force in members FG, EG, and EH. Hint: Method of Section.

Calculate modified duration using the information : d. Define convexity and explain how modified duration and convexity are used to ap- proximate the bond's percentage change in price, given a large change in interest rates.

Price for providing gas on a last resort basis : How would suppliers react if TransCo charged a very high price for providing gas on a last resort basis?

Supply of gas to domestic households : What possible advantages to the consumer could there be in (a) TransCo having a monopoly over gas pipelines; (b) BGT remaining a monopoly in the supply of gas to domestic households?

Determining the discrimination policy : If a cinema could sell all its seats to adults in the evenings at the end of the week, but only a few on Mondays and Tuesdays, what price discrimination policy would you recommend to the cinema in order for it to maximise its weekly revenue?

Is the ottawa charter for health promotion still relevant : Essay - Is the Ottawa Charter for Health Promotion (1986) still relevant in the 21st century?

User Account

All Pages