Can the following question be solved using the [2nd]BOND worksheet in the TI BA II Plus pro? I know there is duration function in it but when I entered the values, the answer came out to be 16…! Also, is using 50 basis points as the volatility in the solution a convention? What if I take 75 basis points instead?? A non-callable bond with 18 years remaining maturity has an annual coupon of 7% and a $1,000 par value. The current yield to maturity on the bond is 8%. Which of the following is closest to the effective duration of the bond? A) 11.89. B) 9.63. C) 8.24. D) 12.72. Your answer: C was incorrect. The correct answer was B) 9.63. First, compute the current price of the bond as: FV = $1,000; PMT = $70; N = 18; I/Y = 8%; CPT → PV = –$906.28. Then compute the price of the bond if rates rise by 50 basis points to 8.5% as: FV = $1,000; PMT = $70; N = 18; I/Y = 8.5%; CPT → PV = –$864.17. Then compute the price of the bond if rates fall by 50 basis points to 7.5% as: FV = $1,000; PMT = $70; N = 18; I/Y = 7.5%; CPT → PV = –$951.47. The formula for effective duration is: (V- – V+) / (2V0Δy). Therefore, effective duration is: ($951.47 – $864.17) / (2 × $906.28 × 0.005) = 9.63.
You can take whatever variation in interest rate, but be consistent. For the bond function: 2ND -> Bond SDT->01.0110 that’s the setlement, say 01/01/2010 for ease of calculus at one arrow down CPN->7 that’s the coupon at one arrow down RDT->01.0128 that’s the redemption, in 18 years at one arrow down RV->1000, that’s the value at redemption at one arrow down, you get to ACT, which is Actual days, leave it at one arrow down, you get 2/y, number of coupon payments per year; to make it 1/y press 2NP SET at one arrow down, YLD->8, that’s the yield at one arrow down PRI -> the price 906.28 at 2 arrow down you get the duration
i can’t get to the last line when i press the arrow i am getting AI =00 please help
The next line, DUR is exactly at one arrow down
I mean the next arrow down after AI
I have the same problem. I have a BA II plus. I dont get the line DUR. It jumps from AI to SDT.
ups…I have a BAII Plus professional. Indeed, at a BAIIPlus it jumps back to SDT, although the guide indicates there should be DUR.