You have just attended a conference on bond investment and you have been told that the current AAA

bond yield is 10%. In your portfolio, there is only one AAA bond issued by One Tune Corporation

which is a RM1,000 par, 16% semi-annual payment bond with 2 years to maturity.

Required:

(a) Calculate the duration of the One Tune Corporation bond. (15 marks)

(b) Calculate the modified duration of the One Tune Corporation bond based on your answer in

part (a) above. (2 marks)

(c) Explain the primary differences between the modified duration and the Macaulay duration in

calculating duration? Which is the more widely used method? (3 marks)

[Total: 20 marks]