A company issue a bond two years ago. The term of this bond is 10 years, and the bond is for $1,000. The coupon on the bond is 4%, and the bond pays interest twice a year. Currently the market rate for the company’s debt is 6%.
What is the current price of the company’s debt?
What is the dollar duration, dv01, and Modified duration of the company’s debt?
Use Modified Duration to estimate what would happen to the price of the company’s debt if interest rates went to 7%. What would be the actual price if the rate for the debt went to 7%?