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Macaulay and modified durations of the bond

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Reference no: EM133110730

1. You find a bond with 19 years until maturity that has a coupon rate of 8% paid semi-annually and a yield to maturity of 7%. What are the Macaulay and Modified Durations of the Bond?

2. Suppose the YTM of the bond in question (1) increases by 0.25%, compare the estimated new price using the Modified Duration and regular using the bond pricing formula?

3. Again, suppose the YTM form question (1) increases by 5%, compare the estimated new price using the Modified Duration and regular using the bond pricing formula?

4. What can you say about the effectiveness of using duration to estimate bond price changes for small and larger changes in interest rates.

Reference no: EM133110730

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