Find the Macaulay duration and the modified duration of a 15-year, 9.0% corporate bond priced to yield 7.0%. According to the modified duration of this bond, how much of a price change would this bond incur if market yields rose to 8.0%? Using annual compounding, calculate the price of this bond in one year if rates do rise to 8.0%. How does this price change compare to that predicted by the modified duration? Explain the difference. The Macaulay duration is nothing years. (Round to two decimal places.) The modified duration is nothing years. (Round to two decimal places.) If market yields rose to 8.0%, the change would be nothing%. (Round to two decimal places.) Using annual compounding, the price of this bond in 1 year if rates do rise to 8.0% is $nothing. (Round to the nearest cent.) The actual percentage change in bond price is nothing%. (Round to two decimal places.) Which of the following is true? (Select the best choice below.) A. Duration is a good predictor of price volatility if rates change less than 2%. B. Duration is not a good predictor of price volatility if interest rates undergo a big swing because of the convex relationship of a bond's price-yield relationship. C. Duration is a good predictor of price volality because of the convex relationship of a bond's price-yield relationship. D. Duration is not a good predictor of price volatility if rates change more than a basis point. Click to select your answer(s).

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 10P

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Question

Find the Macaulay duration and the modified duration of a

15-year,

9.0%

corporate bond priced to yield

7.0%.

According to the modified duration of this bond, how much of a price change would this bond incur if market yields rose to

8.0%?

Using annual compounding, calculate the price of this bond in one year if rates do rise to

8.0%.

How does this price change compare to that predicted by the modified duration? Explain the difference.

The Macaulay duration is

nothing

years. (Round to two decimal places.)

The modified duration is

nothing

years. (Round to two decimal places.)

If market yields rose to

8.0%,

the change would be

nothing%.

(Round to two decimal places.)

Using annual compounding, the price of this bond in 1 year if rates do rise to

8.0%

$nothing.

(Round to the nearest cent.)

The actual percentage change in bond price is

nothing%.

(Round to two decimal places.)

Which of the following is true? (Select the best choice below.)

Duration is a good predictor of price volatility if rates change less than 2%.

Duration is not a good predictor of price volatility if interest rates undergo a big swing because of the convex relationship of a bond's price-yield relationship.

Duration is a good predictor of price volality because of the convex relationship of a bond's price-yield relationship.

Duration is not a good predictor of price volatility if rates change more than a basis point.

Click to select your answer(s).

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