### Change in the bond price using modified duration

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##### Reference no: EM132014303

A \$1,000 face value bond has a coupon of 9% (paid annually) and will mature 16 years from today?

A. Assume that the yield-to-maturity is 6%. What is the bond’s:

i. Duration

ii. Modified Duration

B. Assume that the bond’s yield-to-maturity immediately changes from 6% to 5.9% (the bond still has 16 years to maturity).

i. Estimate the % change in the bond’s price using modified duration

ii. What is actual bond price (at YTM = 5.9%), and the % price change (from YTM = 6% to 5.9%)?

C. Assume that the bond’s yield-to-maturity immediately changes from 6% to 5% (the bond still has 16 years to maturity).

i. Estimate the % change in the bond’s price using modified duration

ii. What is actual bond price (at YTM = 5%), and the % price change (from YTM = 6%)?

D. Why is the estimated % price change closer to the actual price change in Part B than it is in Part C?

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