Compute duration and modified duration for each bond

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Reference no: EM132006281

Consider the following two bonds:

Bond A

Term to maturity: 10 years from today

Face value: $1,000

Annual Coupon rate: 6%

Number of payments per year: 1

Bond B

Term to maturity: 20 years from today

Face value: $1,000

Annual Coupon rate: 9%

Number of payments per year: 1

Compute the price for each bond. The current market interest rate for the bonds is 8%. Assume that YTM of each bond equals the current market interest rate. Then make a table comparing the bond prices when the YTM varies from 1%, 2% … 17%.

Compute duration and modified duration for each bond.

Use (modified) duration to estimate the percentage change of price for each bond if the YTM increases from 8% to 9%.

Reference no: EM132006281

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