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1. Assume that the interest rates for all maturities are 4%. Assuming that there are par bonds with maturities of 5, 15, and 30 years.
1. Assume that the interest rates for all maturities are 4%. Assuming that there are par bonds with maturities of 5, 15, and 30 years. Compute the Macaulay's duration for each of these securities. What is the approximate change in price for each of these three bonds using the duration measure if interest rates increase by 1%? Then compute the actual change in price if interest rates increase by 1% and compare this with the duration approximation.
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