question archive 4) A bond currently sells for $1,020, which gives it a yield to maturity of 5%
4) A bond currently sells for $1,020, which gives it a yield to maturity of 5%
Subject:MathPrice: Bought3
4) 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? (Specifically, Macaulay’s Duration)
Use this equation:
Change in price = -(Modified duration * Change in YTM) * Price
Which is equal to:
- (Macaulay’s duration)/1+YTM * Change in YTM * Price
5) A nine-year bond has a yield of 10% and a duration of 7.210 years. If the bond’s yield increases by 25 basis points, what is the percentage change in the bond’s price as predicted by the duration formula? (Use equation 11.2 in the text)
