Question

You are creating a portfolio that consists of the following two bonds. Bond A pays an annual 7 percent coupon, matures in two years, has a yield to maturity of 8 percent, and a face value of $1,000. Bond B pays an annual 8 percent coupon, matures in three years, has a yield to maturity of 9 percent, and a face value of $1,000.

Calculate the Modified Duration for Bond A.

Step 1

We will use the MDURATION function of the excel to calculate the modified duration of bond A.

Let's assume settlement date of the bond is 1/1/2019 ( you can assume any date, it's immaterial), Hence maturity date will be 2 years away from this date. Hence, Mat...

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