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Estimate elasticity of the interest rate changes

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Reference no: EM133072916

Using the following information:

Bond Maturity

20 years

Annual coupon rate

10%

Par value

1000

Annual Yield

5%

Payment time of interest

Every 6 months

Period(Semi-annual)

40

 

Assumed Settlement date

12/31/2000

Assumed Maturity Date

12/31/2020

 

Modified Duration

10.96
  1. Please estimate elasticity if the interest rate changes to 6%?
  2. Please estimate elasticity if the interest rate changes to 4%? 
  3. Some investors assert that the elasticity in (2) must be greater than that in 1)?

Reference no: EM133072916

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