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4.U.S. Treasury bonds pay coupon interest semiannually. Suppose a Treasury bond matures in two years, the...

4.U.S. Treasury bonds pay coupon interest semiannually. Suppose a Treasury bond matures in two years, the annual coupon rate is 2.6 percent, the face value is $1,000, and the annual yield to maturity is 3.5 percent. a. What is the duration of the bond? b. What is the modified duration? c. What is the dollar duration? d. What would be the change in price of the bond if there was a 10 basis point change in the return?

Solutions

Expert Solution

Face value (F) = 1000

Coupon period in a year = 2

Coupon rate per period(c) = 0.026/2 = 0.13

Yield to maturity per period (y) = 0.035/2 = 0.0175

Period until maturity (t) = 2*2 = 4

Price of Bond(P0)

a) Duration of Bond (D)

b. Modified Duration (M'D)

c. Dollar duration

Change in return (y) = 0.0010

Change in Bond Price:

jeff jeffy answered 1 year ago

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