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What is the duration of a bond with a coupon rate of 8%, paid semiannually, purchased...

What is the duration of a bond with a coupon rate of 8%, paid semiannually, purchased at $989 and a remaining time to maturity of 3 years?

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Answer #1

first caluclate the rate of the bond

N = 6, FV = 1000, PMT = 80/2, PV = -989

use rate function in Excel and multiply by 2

yield to maturity = 8.4226%

Now when rates rise by 100 basis point

N = 6, FV = 1000, PMT = 80/2, rate = (8.4226+1)/2

use PV function in Excel to determine price

price = 963.56

Now when rates falls by 100 bps

N = 6, FV = 1000, PMT = 80/2, rate = (8.4226 - 1)/2

use PV function in Excel to determine price

price = 1,015.2785

duration = (1,015.2785 - 963.56)/(989*0.02) = 2.61

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