Philip Morris has issued bonds that pay annually with the following characteristics:...

Philip Morris has issued bonds that pay annually with the following characteristics:

a. Calculate modifi ed duration using the information above.

b. Explain why modifi ed duration is a better measure than maturity when calculating the bond’s sensitivity to changes in interest rates.

c. Identify the direction of change in modifi ed duration if:

i. The coupon of the bond were 4%, not 8%.

ii. The maturity of the bond were 7 years, not 15 years.