Question

all parts please.

complete) v P11.27 (similar to) Which one of the following bonds would you select if you thought market interest rates were going to fall by 50 basis points over the next six months? a. A bond with a Macaulay duration of 7.14 years that's currently being priced to yield 6.69 % b. A bond with a Macaulay duration of 17.41 years that's priced to yield 9.78 % c. A bond with a Macaulay duration of 6.68 years that's priced to yield 6.26 % a. The modified duration for a bond with a Macaulay duration of 7.14 years that's ourrently being priced to yield 6.69 % is years. (Round to two decimal places.) answer box and then click Check Answer Enter your answer in the Clear All parts remaining MacBook Ar 3

Answer 1

Option B is correct

With fall in interest rates it is better to buy bond with highest duration so as the price gain due to yield fall will give capital gain

Modified Duration = 7.14/1.0669) = 6.69 years