1) A 30-year bond was issued 28 years ago. The bond has a face value of $1,000, a coupon rate of 6% and a yield of 5%. Coupons are paid semi-annually. a) What is the price of the bond? b) What is the Macaulay duration of the bond? c) What is the modified duration of the bond? d) If the yield of the bond rises to 5.1%, what is the predicted change in the bond’s price?
1) A 30-year bond was issued 28 years ago. The bond has a face value of $1,000, a coupon rate of 6% and a yield of 5%. Coupons are paid semi-annually. a) What is the price of the bond? b) What is the Macaulay duration of the bond? c) What is the modified duration of the bond? d) If the yield of the bond rises to 5.1%, what is the predicted change in the bond’s price?
Chapter6: Fixed-income Securities: Characteristics And Valuation
Section: Chapter Questions
Problem 16P
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1) A 30-year bond was issued 28 years ago. The bond has a face value of $1,000, a coupon rate of 6% and a yield of 5%. Coupons are paid semi-annually.
a) What is the price of the bond?
b) What is the Macaulay duration of the bond?
c) What is the modified duration of the bond?
d) If the yield of the bond rises to 5.1%, what is the predicted change in the
2) a) Which is greater: Macaulay Duration or modified duration?
b) For a bond with a modified duration of 3 and a price of $1,000, what would happen to the bond’s price if its yield increased by 1 basis point?
c) Why does modified duration only provide an approximate change to a bond’s price due to a change in yield to maturity?
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