Calculate the modified duration for a 10-year, 12 percent bond with a yield to m

Question

Calculate the modified duration for a 10-year, 12 percent bond with a yield to maturity of 10 percent and a Macaulay duration of 7.2 years. If the interest rates increase by 50 basis points, What will be the percent change in price for the bond? Why?

1 3. Calculate the modified duration for a 10-year, 12 percent bond with a yield to maturity of 10 percent and a Macaulay duration of 7.2 years. 2 If the interest rates increase by 50 basis points, What will be the percent change in price for the bond? Why? 5 Maturit 6 Coupon 7 YTM 8 Macaulay Duration 9 Change in int rates 10 10 12% 10% 7.2 0.50% Make the calculations in the green cells. Fill in the inputs in the yellow cells Show the formuals in the orange cells 6.43 years 6.55 years 6.79 years 6.86 years 7.01 years 12 b) 13 c) 14 d) 15 e) 16 17 Modified Duration 18 1996 Change in Bond Price 20 21 23 24

Explanation / Answer

Modified Duration = Macaulay Duration / (1 + YTM) = 7.2 / (1 + 10%) = 7.2 / (1 + 10%) = 6.55

% Change in Bond Price = - Modified Duration x Change in int rates = - 6.55 x 0.5% = - 3.27%

Interest rates and bond prices are inversely related. Hence, increase in interest rates would lead to decline in bond prices.

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.