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3. Ave-yearbondwithayieldof11%(continuouslycompounded)paysan8%couponatthe end of each year. (a) What is the bonds price? (b) What is the bonds modied duration? (c) Use the modied duration to
3. Ave-yearbondwithayieldof11%(continuouslycompounded)paysan8%couponatthe end of each year. (a) What is the bonds price? (b) What is the bonds modied duration? (c) Use the modied duration to approximately calculate the effect on the bonds price of a 0.2% decrease in its yield. (d) Recalculate the bonds price on the basis of a 10.8% per annum yield and verify that the result is in agreement with your answer to (c).
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