Jimmy James, CFA has been tasked with estimating the interest rate risk of a bond using duration. The current price is 83. An internal computer valuation model has predicted that if interest rates decline by 25 basis points, the price will increase to 85 and if interest rates increase by 25 basis points the price will decline to 81. The duration of this bond is closest to? A 10 B 11 C 12 D 13
(85 - 81)/(2*83*0.0025) A
A. (85-81)/(2*83*.00255) = 9.64
It’s a race! How are the studies coming along Northeastern?
I believe its A 10 (although the actual answer I get is 9.6 First way of doing it: d = [(85-83)/83]/.0025 = 9.63 ~ 10 Second way of doing it: effective duration = (85-81)/(2x83x.0025) = 9.6 ~ 10
duration = - % change in bond price / yield change (in %) = - (85/83)-1/-.0025 9.6 = A
AliMan- there coming along a little hesitant though. constantly scoring 74-76%