1. Which of the following three bonds will have the greatest price volatility, assuming that each is trading to offer the yield to maturity of 10%?

Bond Coupon Rate Maturity

X 8% 9 years

Y 10 11

Z 11 12

1. a.EstimatethemodifiedandMacaulydurationofthebonds.
2. b.Usingduration,estimatepricechangeofthebondsfora100-basispointincreaseininterestrates.Whatwillbepricechangeindollarsiftheyielddeclinesby100basispoints.
3. c.Computeactualpriceofthebondsfor100-basispointincreaseininterestrates.
5. What would happen to duration if maturity for Bond X rises to 20 years?

1. What would happen to duration if coupon for Bond Y declines to 2%

1. What would happen to duration if yield to maturity for Bond Z rises to 15%?