Question

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A 7.500% semiannual coupon payment bond settles on a coupon date. The tenor is 10 years....

A 7.500% semiannual coupon payment bond settles on a coupon date. The tenor is 10 years. The bond's yield to maturity is 9.400%.  What is the bond’s approximate modified duration (AMD)? Use yield changes of +/- 40 bps around the yield to maturity for your calculations.

A.

5.881
B.

6.101
C.

6.444
D.

6.684

Solutions

Expert Solution

First we calculate the price of bond at YTM = 9.40% and with yield changes of +/- 40bps i.e. (0.40%)

Formula used in excel:

Approximate Modified Duration = (V1-V2) / (2*V0*Change in yield)

Approximate Modified Duration = (902.4405 - 855.4616) / (2*878.5386*0.40%)

Approximate Modified Duration = 6.684

jeff jeffy answered 1 year ago
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