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.
Confirm your ranking by calculating the percentage change in the price of each bond when interest rates rise from 8 to 12 percent.
Definitions:
Competitive Market
A market structure characterized by a large number of buyers and sellers, wherein no single entity has significant power to dictate market conditions.
Free Entry
is a market condition where any business can enter the industry without facing significant barriers, promoting competition.
Equilibrium Price
The price at which the quantity of goods supplied equals the quantity demanded.
Tennis Balls
Small, usually yellow, hollow rubber balls covered in a fibrous felt, used in the game of tennis.
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