Find the modified duration of each bond

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Reference no: EM131084536

Consider the following two bonds:

A 10-year zero-coupon bond with Macaulay duration 10 and yield to maturity 4%

A 5-year, 8% coupon bond with Macaulay duration 4.3 and yield to maturity 7%

1. Find the modified duration of each bond.

2. If market interest rates rise by 0.75%, find the percent change in the price of each bond. Express your answers as percentages rounded to two decimal places.

3. Underline the correct word in each set of parentheses: If you think that market interest rates are going to rise, you should purchase (short-term/long-term) bonds with (small/large) coupon rates.

Reference no: EM131084536

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