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Suppose you are trying to determine the interest rate sensitivity of two bonds. Bond 1 is a 12% coupon bond with a 7-year maturity and a $1000 principal. Bond 2 is a ‘zero-coupon’ bond that pays $1120 after 7 year. The current interest rate is 12%.

- Determine the duration of each bond.

- If the interest rate increases 100 basis points (100 basis points = 1%), what will be the capital loss on each bond?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92861005

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