5 Questions
What is the annual Macaulay duration of the IBM bond?
The weighted average of the number of years until each cash flow is to be paid
How is modified duration (ModDur) calculated?
Macaulay duration divided by one plus the bond’s yield to maturity
What does a bond's annual Macaulay duration measure?
Interest rate risk or sensitivity of a bond’s full price to a change in its yield
When is a bond sold at a premium?
When its coupon rate is higher than the yield to maturity
What happens to a bond's price when there is a 1% increase in yield to maturity?
It decreases approximately by modified duration percentage
Learn how to use the present value formula to value bonds in financial calculations. This example explores the valuation of an IBM bond with periodic payments and a final redemption.
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