Homework SourseA bond currently has a price of 1050 The yield on the bond i
A bond currently has a price of $1,050. The yield on the bond is 7%. If the yield increases 26 basis points, the price of the bond will go down to $1,031. The duration of this bond is ____ years.
6.49
7.47
7.60
6.96
| A bond currently has a price of $1,050. The yield on the bond is 7%. If the yield increases 26 basis points, the price of the bond will go down to $1,031. The duration of this bond is ____ years. |
Solution
Change in price / Previous price = -D* x Change in yield
-19/1050 = -D* x 0.26%
D* = 19/(1050*0.26%)
D* = 6.96
Duration = D* x (1+ Yield)
Duration = 6.96 *(1+7.26%)
Duration = 7.47 years
