Our components of return on a bond investment

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Reference no: EM132524040

a). Discuss the [our components of return on a bond investment over a given holding period.

b). Consider a bond selling at its par value of Ksh l million, with a six year to maturity and a 7% annual coupon rate.

Required:

i) Calculate the bond's duration.

ii) What is the modified duration of the bond?

iii) If the yield to maturity on the bond increased to 8%, what happens to the bonds duration? Why does this change occur?

iv) Why must the duration of a coupon bearing bond always be less than the time to its maturity date?

c). Identify and briefly explain the three conditions that must be satisfied to immunize a portfolio.

Reference no: EM132524040

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