A bond matures in 30 years, has a 20 year duration and a yield to maturity of 9.32%. The change in the level of the market interest rate is 0.47%. The modified duration is and the percentage change in price is .

Question

Quizplus · Accepted Answer

The modified duration is calculated as the Macaulay duration divided by (1 + yield/number of coupon periods per year). Assuming annual coupons, the modified duration is 20 / (1 + 0.0932) = 18.29 years. The percentage change in price is approximately the negative of the modified duration times the change in yield, which is -18.29 * 0.47% = -8.6%.

A Bond Matures in 30 Years, Has a 20 Year