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A bond currently sells for $1,050, which gives it a yield to maturity of 6%. Suppose that if the yield increases by 25 basis points, the price of the bond falls to $1,025. What is the modified duration of this bond? (Do not round intermediate calculations. Round your answer to 4 decimal places.)

Duration years

Respuesta :

abiolataiwo2015

Answer:

9.52 years

Explanation:

Calculation for the modified duration of this bond

First step is to calculate the Percentage decrease in Price of Bond

Percentage decrease in Price of Bond =($1,025-$1,050)/$1,050

Percentage decrease in Price of Bond=-2.3810%

Second step is to calculate the Percentage change in price

Using this formula

Percentage change in price =-Modified Duration*Change in YTM

Let plug in the formula

-2.3810% =-Modified Duration*0.25%

Modified Duration =2.3810%/0.25%

Modified Duration =9.52 years

Therefore the modified duration of this bond is 9.52 years

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