8-9.) Consider a bond with 15 years to maturity, a coupon rate of 13\% that is paid annually, a face value of \$1,000 and a yield to maturity of 15\%. Compute the duration of this bond. (Hint. First compute the bond price).
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The price of a bond is calculated using the formula: \[ P = \frac{C}{r} \left(1 - \frac{1}{(1+r)^n}\right) + \frac{F}{(1+r)^n} \] where: - \(P\) is the price of the bond, - \(C\) is the annual coupon payment (\(C = \text{coupon rate} \times \text{face value}\)), - Show more…
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