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Question

2% t , (! " : "2-,F-@ 100%1. 0 Search in Sheet Home Layout Tables Charts abc whap Text , General Merge C0 00Conditional Calculation Insert Delete Format Themes Aa 115 7 YTM 8 Macaulay Duration 9 Change in int rates 10 11 a) 12 b) 13 c) 14 d) 15 the formuals in the orange 7.2 6.43 years 6.35 years 6.79 years 6.86 years 7.01 ycars 17 Modified Duration 18 19 %Change in Bond Price 21 23 24 25 27 28 29 31 32 35 37 38 39 41 42 43 45 47 48 49 51 S2 53 Prob 2 Prob 3Prob 4 Prob Normal View Cakulate Sum-0

Explanation / Answer

YTM = 10%

Macaulays Duration = 7.20 yrs

Modified Duration = Macaulay's duration/(1+YTM)

= 7.20/(1+10%)

= 6.55 times

Macaulays duration is expressed in years, Modified duration is expressed in times

If the interest rate changes by 0.5%, Bond prices inversely moves by 6.55 * 0.5 = 3.275%

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