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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

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

a.EstimatethemodifiedandMacaulydurationofthebonds.

b.Usingduration,estimatepricechangeofthebondsfora100-basispointincreaseininterestrates.Whatwillbepricechangeindollarsiftheyielddeclinesby100basispoints.

c.Computeactualpriceofthebondsfor100-basispointincreaseininterestrates.

What would happen to duration if maturity for Bond X rises to 20 years?

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

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

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