Compute the duration for bond C, and rank the bonds on the basis of their price volatility. The current rate of interest is 8%, so the prices of bonds A and B are $1,000 and $1,268 respectively.
Bond Coupon Term Duration
A 8% 10 years 7.25
B 12% 10 years 6.74
C 8% 5 years ?
Confirm your ranking by calculating the % change in the price of each bond when interest rates rise from 8% to 12%. (Bond A's and B's prices become $774 and $1,000 respectively.)