Question

consider a 3-year maturity annual 9% coupon paying bond with a ytm of 12%. what is the duration of this bond? what will be the predicted price of this (using duration in the calculations) bond if the market yield increases by 100 basis points?

Answer 1

The duration of the bond is 8.65 years.

The duration of the 3-year maturity annual 9% coupon paying bond will be calculated using this formula
`{Duration = (1)/(1 + YTM) \left( (1)/(c) - (N)/((1 + YTM)^N))`

Given data:

• The yield to maturity = 12%
• The annual coupon rate is 9%
• N = 3.

`{Duration} = (1)/(1 + 0.12) \left( (1)/(0.09) - (3)/((1 + 0.12)^3)]`

`{Duration} = 0.8929 * ( 11.11 - 1.4235) \\{Duration} = 0.8929 * 9.6865\\{Duration} = 8.64907585 \\{Duration} = 8.65`