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What is the modified duration of the bond

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Question: The duration of an 11-year, $1,000 Treasury bond paying a 10 percent semiannual coupon and selling at par has been estimated at 6.9 years.

a. What is the modified duration of the bond?

b. What will be the estimated price change on the bond if interest rates increase 0.10 percent? If rates decrease 0.20 percent?

c. What would the actual price of the bond be under each rate change situation in part (b) using the traditional present value bond pricing techniques? What is the amount of error in each case?

Reference no: EM132738331

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