Calculate the modified duration of the bond calculating the, Financial Management

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Calculate the modified duration of the bond calculating the

JamBel plc. has issued bonds that pay interest annually with the following characteristics:

Coupon 6.5%

Current price £101.34

Yield to maturity 6%

Maturity 3 years

(a) Using the information provided, calculate the duration of the bond.

(b) Using the information provided and your answer to part (a), calculate the modified duration of the bond.

(c) Using the information provided and your answer to part (b), calculate the projected price change for the bond if the yield to maturity for this bond declines by 200 basis points.

(d) Explain why the modified duration is a better measure than maturity when calculating the bond’s sensitivity to changes in interest rates.

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