Question 1 of 3 Save Exit Submit 1 100points A bond currentl

Question 1 (of 3) Save &Exit; Submit 1 100points A bond currently sells for $1,020, which gives it a yield to maturity of 5%. Suppose that if the yield increases by 25 basis points, the price of the bond falls to $985. What is the duration of this bond? (Do not round intermediate calculations. Round your answer to 4 decimal places.) Duration References eBook & Resources Worksheet Learning Objective: 11-02 Compute the duration of bonds, and use duration to measure interest rate sensitivity

Solution

1. Change in Price = $985 - $1,020 = -$35

Modified Duration = - (Change in Price / Price) / Change in YTM

= -(-$35/$1,020) / 0.25% = 0.0343/0.25% = 13.7255 years

Suppose the coupon payment is made semiannually;

Macaulay Duration = Modified Duration*(1 + r/2)

= 13.7255*(1 + 5%/2) = 14.0686 years

2.

a). Put the following figures in the financial calculator:

This is a semi-annual YTM, we have to convert it to Annual YTM = 2.81% * 2 = 5.62%

b). Put the following figures in the financial calculator:

This is a semi-annual YTM, we have to convert it to Annual YTM = 1.01% * 2 = 2.01%

c). Put the following figures in the financial calculator:

This is a semi-annual YTM, we have to convert it to Annual YTM = 4.31% * 2 = 8.62%

d). Put the following figures in the financial calculator:

e). Put the following figures in the financial calculator:

a). Put the following figures in the financial calculator:

This is a semi-annual period, we have to convert it to Annual terms = 30.93 / 2 = 15.46 years

INPUT	20*2 = 40		-$330	$0	$1,000
TVM	N	I/Y	PV	PMT	FV
OUTPUT		2.81%