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# Duration of bond

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Calculate the duration of an 8 percent, \$1,000 par bond that matures in the three years if the bond's YTM is 10 percent and interest is paid semi-annually.
a) Calculate this bond's modified duration.
b) Assuming the bond's YTM goes from 10 percent to 9.5 percent, calculate an estimate of the price change.

#### Solution Preview

Calculate the duration of an 8 percent, \$1,000 par bond that matures in the three years if the bond's TYM is 10 percent and interest is paid semiannually.

?In general, for a bond paying constant periodic coupons, the formula for Macaulay's Duration is:

?In the formula, C is the annual coupon rate, M is the bond maturity (in years), and YTM is the yield to maturity, n is the compounding frequency (i.e. n=1 for annual 2 for semiannual , 4 for quarterly) ...

#### Solution Summary

Calculates duration, modified duration and price change when interest rate changes.

\$2.19