Question 2

Assume the face value of the bond is 100

i. Calculate the Macaulay Duration for an 9 annual coupon bond with 3 years left to maturity if the bonds yield to maturity is 8%. (Show your calculations)

ii. What is the modified duration of the bond?

iii. If 3 year yields to maturity were to suddenly to increase from 8% to 9% and the bond in problem (i) was selling for 102.58 at 8% yield, what would you expect the bond price to be after the yield increases to 9% ?