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You own a 4%, 6 year to maturity bond which is selling for 94.871. You are concerned that the market rates of interest may increase
You own a 4%, 6 year to maturity bond which is selling for 94.871. You are concerned that the market rates of interest may increase but up to 2%. a. Calculate the MMD (modified McCauley duration). b. Calculate the approximate change in bond price if rates changed immediately up by 2%. c. Verify with the standard bond calculation. d. If you bought the bond because you had a 6 year time to a capital payment explain what are the advantages and disadvantages of this bond investment to meet your capital outflow in 6 years
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