Bond Duration

1.CouponMaturityYTM

5.0%20195.50%

4.5% 2028 4.80%

4.0%2038 4.2%

0.0%20384.10

3 4%20433.80%

Calculate the duration of each bond using annual compounding, except for the first bond, where semi-annual compounding should be used. Assume that the bonds mature in the month that we are now in. (For example, if it is now April, the bonds mature in April of each the maturity years. If it is now December, the bonds mature in December in each of the maturity years.)

Calculate the modified duration of each bond.

Do not use the Duration Function in Excel.

a.Using modified duration determine what will happen to the prices of the bonds if interest rates change (up and down) by 50 basis points.

d.Determine the actual percentage change in the price of each bond.

e.Which bond is the worst risky to own if interest rates increase? Which bond is the best bond to own if interest rates decrease?