Consider a 30 year, R1000 semi-annual-pay bond with a 9% courpon and 13.2% yield to maturity....

Consider a 30 year, R1000 semi-annual-pay bond with a 9% courpon and 13.2% yield to maturity. Based on achange in the yield to maturity of 1.20%, the effective duration of the bond will be what?

Expert Solution

The Effective Duration formula is another way to calculate bond duration. The formula uses the bond's currenty yield to maturity (YTM) along with two more present values (a slightly higher YTM and a slightly lower yield YTM).

The formula for Effective Duration is:

Effective Duration = (PL - PH) / (2 x P0 x Change in Yield)

Where:

PL = Price of the bond for the lower yield
PH = Price of the bond for the higher yield
P0 = Price of the bond at its current yield

ekkarill92 answered 2 years ago

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