As the Portfolio Manager of Goodco Fund, you have observed your equity portfolio lose value over the past three months. You have decided to invest in a Bond with a 9 percent coupon and a 5-year maturity currently selling at $1,040 with interest paid annually. Your interest rate outlook is that rates will continue to fall and so you need to know whether this particular bond is suited for your portfolio.
a) Calculate the duration of this bond
b) What are three reasons that duration is important in bond analysis and management?
c) Why does the coupon rate affect the volatility of bond price??
d) You decided to purchase the bond for your portfolio, but now interest rates have risen by 100 basis points, what is the modified duration of the Bond, Explain,
e) Given the current market conditions characterized by record low interest rates, credit concerns, high volatility and uncertainty, was your interest rate outlook suitable and what would be an appropriate