In: Finance
A 5-year, $1,000 face bond with a 3% coupon is currently selling with a 4% YTM (yield to maturity). Calculate the duration of the bond and how long should you hold the bond if you want to earn the 4% YTM that you thought you would get when you bought the bond? Assume that market yields rise by 40 basis points. What do you expect to happen to the bond’s price, using modified duration?