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Calculate the duration of each bond

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Question - Consider three bonds. Bond A is a 4 year coupon bond with a 75% coupon rate, a $1000 face value, and a 2% yield to maturity. Bond B is a comparable (i.e. - with similar liquidity, default risk, and tax treatment) 3 year, zero coupon bond, with a $1000 face value and a 2% yield to maturity. Bond C is a comparable 3 year coupon bond with a 75% coupon rate, a $1000 face value, and a 2% yield to maturity.

a. Calculate the duration of each bond.

b. Which bond carries the most interest rate risk? Which bond carries the least interest rate risk? Explain.

c. Calculate the modified duration for each bond.

d. How would a 4% increase in interest rates affect the resale value of each bond (up or down, and by what %)?

Reference no: EM133139145

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