Find the Macaulay duration and the modified duration of a 15-year, 10.0% corporate bond priced to yield 8.0%. According to the modified duration of this bond, how much of a price change would this bond incur if market yields rose to 9.0%? Using annual compounding, calculate the price of this bond in one year if rates do rise to 9.0%. How does this price change compare to that predicted by the modified duration? Explain the difference.

The Macaulay duration is ___ years.(Round to two decimal places.)

The modified duration is____years.(Round to two decimal places.)

If market yields rose to 9.0%, the change would be ____%. (Round to two decimal places.)

Using annual compounding, the price of this bond in 1 year if rates do rise to 9.0% is $_____. (Round to the nearest cent.)

The actual percentage change in bond price is ___%.(Round to two decimal places.)

Which of the following is true?(Select the best choice below.)

A. Duration is a good predictor of price volality because of the convex relationship of a bond's price-yield relationship.

B. Duration is not a good predictor of price volatility if rates change more than a basis point.

C. Duration is a good predictor of price volatility if rates change less than 2%.

D. Duration is not a good predictor of price volatility if interest rates undergo a big swing because of the convex relationship of a bond's price-yield relationship.