Find the Macaulay duration and the modified duration of a 15-year,8.5% corporate bond priced to yield 6.5%. According to the modified duration of this bond, how much of a price change would this bond incur if market yields rose to 7.5%? Using annual compounding, calculate the price of this bond in one year if rates do rise to 7.5%. How does this price change compare to that predicted by the modified duration? Explain the difference.Question content area bottom

Part 1

The Macaulay duration is ?

Part 2

The modified duration is ?

Part 3

If market yields rose to 7.5%, the change would be ?

Part 4

Using annual compounding, the price of this bond in 1 year if rates do rise to 7.5% is ?

Part 5

The actual percentage change in bond price is ?

Part 6

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

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

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

C.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.

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