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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
Annual Coupon rate: 9%
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%
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