Calculate the bond macaulay and modified duration

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On July 1st 2021, John buys a bond that was issued on January 1st and will mature on December 31st 2025. Annual coupon rate is 8%. Annual interest payments are made on December 31st each year from 2021 to 2025 and principle payment on December 31st 2025. On July 1st 2021, the bond is quoted on the market at the clean price of 99.

a) Calculate the bond's Macaulay and Modified Duration on July 1st 2021.

b) On December 31st 2021, John receives the first interest payment and deposit it into a 1-year saving account with a 6% interest rate. After receiving the interest payment on December 31st 2022, John decides to sell the bond, and withdraw his saving in the bank to pay for his MBA in the US. On December 31st 2022, the bond's yield to maturity is 7%. Calculate John's bond return.

Reference no: EM132951323

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