Why is it that after a product has been on the market for a


Why is it that after a product has been on the market for a while and is selling very well, the price may go down?

A bond with 5 years left to maturity, $1,000 par value and a YTM of 11% (APR, semi-annual compounding) pays an 8% coupon semi-annually.

• What is the bond’s price?

• What are the bond’s Macaulay and modified duration? Interpret them.

• What is the the new bond price if the yield decreases by 25bp?

• Recalculate the bond’s price on the basis of 10.75% YTM, and verify that the result is in agreement with your answer to the previous question.

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Financial Management: Why is it that after a product has been on the market for a
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