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Define the concept of duration

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Reference no: EM132769508

(a) Define the concept of duration. What is its economic meaning? How does it differ from maturity?

(b) Calculate the duration of a two-year corporate bond paying 6 percent interest annually, selling at par. Principal of $20,000,000 is due at the end of two years.

(c) A $1,000 six-year Eurobond has an 8 percent coupon, is selling at par, and contracts to make annual payments of interest. The duration of this bond is 4.99 years. What will be the new price using the duration model if interest rates increase to 8.5 percent?

Reference no: EM132769508

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