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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
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.
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