Suppose that we have a 5-year bond with an 8 coupon rate, Financial Management

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Suppose that we have a 5-year bond with an 8 coupon rate

1. Suppose that we have a 5-year bond with an 8% coupon rate (paid semi-annually). The interest rate on this bond is 6% and its face value is $100. What is its modified duration?

2. What is the % change in bond price if the yield of the bond changes from 6% to 6.1%? Compare this to the change approximated by the modified duration.

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Financial Management: Suppose that we have a 5-year bond with an 8 coupon rate

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Financial Management: Suppose that we have a 5-year bond with an 8 coupon rate

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