Compute the duration for bond

timer Asked: Mar 23rd, 2016

Question description

Compute the duration for bond C and rank the bonds on the basis of theit price volatility. The current rate of interest is 8 percent so the prices of bond A and B are $1000 and $1268 respectively. 

Bond A  coupon 8% term 10 year duration 7.25

Bond B  coupon 12% term 10 years duration  6.74 

Bond C coupon 8% term 5years  duration ?

Confirm your ranking by calculating the percentage change in the price of each bond when interest rates rises from 8 to 12 percent. ( Bond A and B prices become $774 and $1000, respectively. )

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