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  3. 4. a) compute the modified duration of a 10% coupo

4. a) Compute the modified duration of a 10% coupon, 4-year corporate bond with a yield...

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Finance

4. a) Compute the modified duration of a 10% coupon, 4-yearcorporate bond with a yield to maturity of 8%. b) Using themodified duration, If the market yield drops by 25 basis points,there will be a __________% (increase/decrease) in the bond'sprice.

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To calculate Modified duration we first need to calculateMacaulay durationLets assume that the par value of the bond is 100 so 10 couponwill be 10CF in year 4 coupon par value 10100110YTM 8 we discount all the coupons and principal payments totime 0 using YTM as the discount rateNext we multiply    See Answer
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4. a) Compute the modified duration of a 10% coupon, 4-yearcorporate bond with a yield to maturity of 8%. b) Using themodified duration, If the market yield drops by 25 basis points,there will be a __________% (increase/decrease) in the bond'sprice.

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