Consider a bond that has a coupon rate of 7.5%, five years to maturity, and is...

Consider a bond that has a coupon rate of 7.5%, five years to maturity, and is currently priced to yield 7.5%. Calculate the following:  Macaulay duration  Modified duration  Percentage change in price for a 1% increase in the yield to maturity

Expert Solution

Period	Cash Flow	PV Cash Flow	Duration Calc
0	($1,000.00)
1	75.00	69.77	69.77
2	75.00	64.90	129.80
3	75.00	60.37	181.12
4	75.00	56.16	224.64
5	1,075.00	748.80	3,744.00
		Total	4,349.33

=4349.33/1000 = 4.349

Modified duration = Macaulay duration/(1+YTM) = 4.349/(1+0.075)

=4.05

with 1 % increase in YTM

Modified duration prediction = -Mod_Duration*Yield_Change

-4.05*1 = -4.05%

jeff jeffy answered 1 year ago

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