Q1.

i. What is sensitivity of bond prices to interest rate movements? How to measure the bond price sensitivity 2.5

ii. A bond has two years remaining to maturity, a $1,000 par value, a 9 percent coupon rate, and a 10 percent yield to maturity. What is the modified duration of this bond? Interpret the modified duration for this bond. If bond yields rise by 0.30%. What is an estimate of the percentage drop in the bonds price?

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