Question

3 Year bond
Semi-Annual Coupon
Coupon Rate 10%
Yield 12%
Calculate Duration

Solution Face Value Assumed 100 Settlement 10/17/2022

Maturity 10/17/2025

Tenure Cash Flow Pv of Cash flows Weights Weights * Tenure

0.5 5 4.72 0.05 0.02
1 5 4.45 0.05 0.05
1.5 5 4.20 0.04 0.07
2 5 3.96 0.04 0.08
2.5 5 3.74 0.04 0.10
3 105 74.02 0.78 2.34
95.08 1.00 2.65

Duration
By formulas By function
2.65 2.65

Modified Duration
Duration/(1+(yield/2)) Mduration
By formula By Function
2.50 2.50

Delta(Taken 1%) 1%
P high P low
Change in Yield 11.00% 13.00%
Change in price $97.50 $92.74

Modified Duration $2.51

Duration

Lower Yield bond Prices are more it will take More time to pay Hence Higher Duration
Higher yield Bond Prices are Less it will take less time to pay Hence Lower Duration

Long term bonds it will take More time to pay Hence Higher Duration
Short Term bonds it will take less time to pay Hence Lower Duration

Ready measure, price change that is going to happen

 Maturity
Bond Settlement Date Date Coupon Rate Coupon Frequency Yield
Bond A 8/19/2021 8/19/2030 8% 2 7%
Bond B 8/19/2021 8/19/2035 7% 2 9%
Bond C 8/19/2021 8/19/2040 6% 2 8%

M Duration duration/1+y/m

Duration M duration Price No of yrs Face value of bonds

6.668780548752 6.443266231 $1,065.95 9 $1,065,948.41
8.669697150348 8.296360909 $8,425.71 14 $8,425,712.65
10.69495774155 10.28361321 $80.63 19 $80,632.14
$9,572,293.19
FV=RV Qty of bonds
1000 1000
10,000 1000
100 1000

Weights of mp Duration of portfolio M duration of portfolio

0.11135768484 0.742619962641054 0.717507210281211
0.88021882309 7.63123062222493 7.30261303562194
0.00842349207 0.0900888916841559 0.0866239343116883
1 8.46393947655013 8.10674418021484