You have discovered that when the required rate of return on a bond you own fell

Question

You have discovered that when the required rate of return on a bond you own fell by 0.5 percent from 8.1 percent to 7.6 percent, the fair present value rose from $945 to $965. What is the duration of this bond? Assume annual payments. ((Do not round intermediate calculations. Round your answer to 2 decimal place. (e.g., 32.12))

You have discovered that when the required rate of return on a bond you own fell by 0.5 percent from 8.1 percent to 7.6 percent, the fair present value rose from $945 to $965. What is the duration of this bond? Assume annual payments. ((Do not round intermediate calculations. Round your answer to 2 decimal place. (e.g., 32.12))

Explanation / Answer

Change in price of bond %= Duration of Bond * Change in Yields

Duration = Change in price of bond % / Change in Yields

= ((965 -945) /945) / 0.05%

= 42.33

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