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Assume that you are a fixed income analyst and you are considering investing in a five...

Assume that you are a fixed income analyst and you are considering investing in a five year coupon paying bond (coupons are paid semi-annually) with face value of $100,000. Coupons are 6% per annum and the applicable yield for this bond is 7% per annum.

  1. Calculate the duration and the modified duration of the above bond.
  2. Employing an interest rate anticipation strategy, your prediction is that the current yield of 7% would increase to 7.5%. Calculate the expected price change associated with this downward speculation in yield.
  3. Describe the direction of price change and justify why you think the price is set to move in the specific direction.

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jeff jeffy answered 2 years ago
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