MM bond is currently priced at discount, 918.89. The bonds par value is 1000. It promises fixed regular income to investors at 6% per annum. Coupon is paid twice per year. It has 5 years remaining to maturity

Discuss whether the price of MM Bond above will be more volatile to changes in the market interest rate than Bond XYZ below. Support your argument by showing your calculations of Macaulay Duration.

Bond XYZ

Par value 1,000

Term to maturity 5 years

Annual coupon rate 5%

Frequency of coupon payment per year Once

Yield of bonds in similar risk class 8%

(7 marks)