Find the Macaulay duration and the modified duration of a 20-year,

9.5% corporate bond priced to yield 7.5%.According to the modified duration of this bond, how much of a price change would this bond incur if market yields rose to

8.5%? Using annual compounding, calculate the price of this bond in 1 year if rates do rise to

8.5%. How does this price change compare to that predicted by the modified duration? Explain the difference

The Macaulay duration is

nothing

.

(Round to two decimal places.)

The modified duration is

nothing

.

(Round to two decimal places.)

If market yields rose to

8.5

%,

the change would be

nothing

%.

(Round to two decimal places.)

Using annual compounding, the price of this bond in 1 year if rates do rise to

8.5

%

is

$nothing

.

(Round to two decimal places.)

The actual percentage change in bond price is

nothing

%.

(Round to two decimal places.)

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

A.

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.

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 volality because of the convex relationship of a bond's price-yield relationship.

D.

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