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Anton [14]
3 years ago
14

A bond currently sells for $1,170, which gives it a yield to maturity of 5%. Suppose that if the yield increases by 30 basis poi

nts, the price of the bond falls to $1,140. What is the duration of this bond
Business
1 answer:
Grace [21]3 years ago
4 0

Answer:

8.53 years

Explanation:

Calculation for the duration of the bond

The first step is to calculate for Change in Bond Price

Change in Bond Price = -(30)/1,170

Change in Bond Price = -0.0256×100

Change in Bond Price =-2.56%

Second step is to find the Effective Duration

Effective duration = -0.0256/0.0030

Effective Duration = 8.53 years

Therefore the duration of this bond will be 8.53 years

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