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Consider a 13-year $1,000 face bond with a coupon rate of 2.5%, a ytm of 3%, and a price of 946.50. The bond pays coupons
Consider a 13-year $1,000 face bond with a coupon rate of 2.5%, a ytm of 3%, and a price of 946.50. The bond pays coupons semi-annually and has a duration of 11.12 years.
1) What is this bond's modified duration? Now suppose the bond's ytm increases to 4%.
2) Using modified duration, approximately what will be the bond's new price?
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