A Rio Tinto corporate bond currently sells for $1,450, which gives it a yield to maturity of 7%. Its convexity is 455. Suppose that if the yield increases by 50 basis points, the price of the bond falls to $1,400. a. What is the modified duration of this bond? b. What is the duration of this bond?

A Rio Tinto corporate bond currently sells for $1,450, which gives it a yield to maturity of 7%. Its convexity is 455. Suppose that if the yield increases by 50 basis points, the price of the bond falls to $1,400. a. What is the modified duration of this bond? b. What is the duration of this bond?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

A Rio Tinto corporate bond currently sells for $1,450, which
gives it a yield to maturity of 7%. Its convexity is 455.
Suppose that if the yield increases by 50 basis points, the
price of the bond falls to $1,400.
a. What is the modified duration of this bond?
b. What is the duration of this bond?

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