Exhibit 16-9
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
Consider two bonds, both pay annual interest. Bond Y has a coupon of 6% per year, maturity of 5 years, yield to maturity of 6% per year, and a face value of $1000. Bond X has a coupon of 7% per year, maturity of 10 years, yield to maturity of 4% per year, and a face value of $1000.
-Refer to Exhibit 16-9. Calculate the modified duration for Bond X.

Question

Quizplus · Accepted Answer

The modified duration for Bond X is calculated using the formula: Modified Duration = Macaulay Duration / (1 + (YTM/n)). For Bond X, with a coupon of 7%, YTM of 4%, and maturity of 10 years, the Macaulay Duration is approximately 7.8 years. The modified duration is then 7.8 / (1 + 0.04/1) = 7.5.

Exhibit 16-9 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)