Objective type of questions on bonds

Reference no: EM1314422

a. Calculate the duration of a bond which matures in 5 years, has a face value of $1,000 and a coupon rate of 8%, when the interest rate on comparable assets is 3%.

b. Calculate the duration on a bond with all of the same attributes as the bond in part (a) except that it has a face value of $100. Based on your calculation, what can you conclude about the relationship between face value and duration?

c. Consider two bonds, one with duration of 3 and the other with duration of 5. If interest rates on comparable assets rise, which of the bonds would you rather be holding? Explain.

Reference no: EM1314422

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