# Homework 13 - 1 100 basis points means 1 of YTM so YTM goes...

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13 th Home Assignment A formula that attempts to explain a change in the price of a bond as a function of a change in interest rates . It is based on the assumption that rises in interest rates depress bond prices and drops in rates do the opposite. It is calculated as: Modified Duration = Macaulay Duration / (1 + YTM /Number of coupon payments per year)
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Unformatted text preview: 1) 100 basis points means 1% of YTM, so YTM goes down by 1%. Hence, YTM1=0.446 and YTM2= 2.841 Modified duration for bond1 = 3.849825 Modified duration for bond 2 = 3.757082 2) a. w1=0.5, w2=0.5 Modified duration = 3.6254965 b. w1 =0.25, w2= 0.75 Modified duration = 3.65164794 c. w1 =0.4, w2 = 0.6 Modified duration = 3.646444...
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## This note was uploaded on 01/27/2011 for the course MGMT 4370 taught by Professor Gupta during the Fall '10 term at Rensselaer Polytechnic Institute.

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