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A bond currently sells for $1,170, which gives it a yield to maturity of 5%. Sup

ID: 2713307 • Letter: A

Question

A bond currently sells for $1,170, which gives it a yield to maturity of 5%. Suppose that if the yield increases by 30 basis points, the price of the bond falls to $1,140. What is the duration of this bond? (Do not round intermediate calculations. Round your answer to 4 decimal places.)

A bond currently sells for $1,170, which gives it a yield to maturity of 5%. Suppose that if the yield increases by 30 basis points, the price of the bond falls to $1,140. What is the duration of this bond? (Do not round intermediate calculations. Round your answer to 4 decimal places.)

Explanation / Answer

Change in price = MD X change in yield

2.564 = MD x 0.3

MD = 8.547

M Duration = Duration/(1+4TM)

8.547 X (1.05) = D

D = 8.974

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