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

Calculation of Duration

Current Bond Price=$1020

Expected Change in Price =985-1020= -35

Current YTM =5%

Change in YTM= 25 Basic points = .25%

Duration = - Change in price / Bond price / Change in YTM

=[-(-35)/1020]/.25%

=13.7254 Years