Bond duration

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Posts: 22
Joined: Thu Apr 17, 2014 9:40 pm

Bond duration

Postby devinarastogi84 » Fri May 23, 2014 5:44 am

Ina question , Royal Bank has a par position in a 5 year, 0 coupon bond that has a Market value of 19059948. The modified dutaion will be?
In the solution, for calculating YTM N=10 is used, y? while its a 0 coupon bond and then for Modified duration also, YTM/2 is used, y?

also, YTM formula is ((FV-P)+C/N)/ ((F+P)/2); in this formula, if the bond is semi annual coupn bond then only F+P/2 is applicabe or in all the cases ie annual coupon bond also we will do F+P/2.

Please explain.

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Joined: Wed Apr 09, 2014 6:28 am

Bond duration

Postby edupristine » Sat May 24, 2014 7:53 am

The bond listed is a zero coupon bond i.e. a discount bond and discount bonds are semi-annual bonds. Hence, those formulas are used.

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