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Question
compute the durations of the following bonds and rank them on the basis of their price volatility. assume that the current rate of interest is 8 percent.
bond coupon term
a 8 percent 10 years
b 12 percent 10 years
c 8 percent 5 years
confirm your ranking by calculating the percentage change in the price of each bond when interest rates rise from 8 to 12 percent.
Answer
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