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A portfolio manager wants to estimate the interest rate risk of a bond using duration. The current price of the bond is 82. ABelow is some useful material.

Macaulay, Modified and Approximate Modified Durations Macaulay duration (MacDur) is named after Frederick Macaulay, the Canad

Price Price-Yield Curve Approximation for the Line Tangent to the Price-Yield Curve Line Tangent to the Price-Yield Curve Yie

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Answer #1

The duration here can be calculated using Approximate modified duration

On Putting the values in the formula stated in attachment,

Approximate Modified Duration = (83.5-80.75)/(2*0.003*82)

= 2.75/0.492 = 5.59

Therefore, duration is 5.59

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