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A newly issued bond has the following characteristics: Coupon = 8% YTM = 8% Maturity = 15 years Macauly Duration = 10 years a) Calculate
A newly issued bond has the following characteristics:
Coupon = 8%
YTM = 8%
Maturity = 15 years
Macauly Duration = 10 years
a) Calculate modified duration using the information above (3 marks?)
b) Exlpain why modified duration is a better measure than maturity when calculating the bonds sensitivity to changes in interest rates (3 marks?)
c) Identify the direction of change in modified duration if (3 marks?)
i. The coupon of the bond is at 4% instead of 8%
ii. The maturity of the bond is 7 years instead of 8 years
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