An eight-year bond has a yield of 10% and a duration of 7.196 years. If the bond's yield increases by 30 basis points,...

Question

Question

An eight-year bond has a yield of 10% and a duration of 7.196 years. If the bonds yield increases by 30 basis points, what i

Answer 1

Answer #1

Modified Duration = Duration / (1+YTM)

= 7.196 / (1+0.10)

= 7.196 / 1.1.

= 6.54%

1% change in YTM will lead to change price by 6.54% in opposite direction.

0.3% will affect price by 6.54% * 0.3 / 1

= 1.962%

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Answer 2

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