Philip Morris has issued bonds that pay semi-annually with following characteristics:

Coupon YTM Maturity Maturity Duration

8% 8% 15 years 10 Years

a) Calculate the modified duration using the information above.

b) Explain why modified duration is a better measure than maturity when calculating the bond's sensitivity to changes in interest rates.

c) Identify the direction of change in modified duration

if: i) The coupon of the bond were 4%, not 8%.

ii) The maturity of the bond were 7 years 7 years, not 15 years.

answer and explain