Question
Compute the modified duration for the following fixed-rate, non-prepayable mortgage. Using the calculated modified duration, estimate the percentage change in the mortgage value if the
Compute the modified duration for the following fixed-rate, non-prepayable mortgage. Using the calculated modified duration, estimate the percentage change in the mortgage value if the yield to maturity decreases to 11% p.a. from 12% p.a.
| Month | 0 | 1 | 2 |
| Loan Outstanding | 100 | 50 | 0 |
| Interest payments (12% p.a.) | 1 | 0.5 | |
| Principal payments | 50 | 50 |
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Contemporary Financial Management
Authors: R. Charles Moyer, James R. Mcguigan, William J. Kretlow
9th Edition
032416470X, 9780324164701
