A bond currently sells for $1,060, which gives it a yield to maturity of 5%. Sup

Question

A bond currently sells for $1,060, which gives it a yield to maturity of 5%. Suppose that if the yield increases by 50 basis points, the price of the bond falls to $1,035. What is the duration of this bond? (Do not round intermediate calculations. Round your answer to 4 decimal places.

Duration: ?

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A bond currently sells for $1,060, which gives it a yield to maturity of 5%. Suppose that if the yield increases by 50 basis points, the price of the bond falls to $1,035. What is the duration of this bond? (Do not round intermediate calculations. Round your answer to 4 decimal places.

Explanation / Answer

Current Price of Bond = $ 1060

Yield to Maturity = 5%

Change in yield = 50 basis points = 0.50%

Price of the bond = $ 1035

Change in Bond prices = $ 1035 - $ 1060 = - $ 25

Duration = - { (change in value of the bond)/change in yield in decimal)} / Current Price of bond

                  = -{- 25/ (0.055 – 0.05)} /1060

                  = (25/0.005)/1060

                  = 5000 / 1060 = 4.7169811 or 4.7170 (rounded off)

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