A bond has a Macaulay duration of 6 years. The yield to maturity for this bond is currently 5%. If interest rates rise across the curve by 10 basis points, what is the impact on the price of the bond?
Since Macaulay duration is 6 years, the modified duration is 6/(1+5%) = 5.71. This means that if interest rates were to rise by 1%, the bond price would decrease by 5.71%. Since interest rates have risen by 10 bps, (100bps = 1%), the bond's price would fall by roughly 0.571%, or 57 basis points
Contribute your Thoughts:
Chosen Answer:
This is a voting comment (?). You can switch to a simple comment. It is better to Upvote an existing comment if you don't have anything to add.
Submit