Calculate the bond effective duration

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Reference no: EM131968084

Assume a 7 year maturity, 5% coupon bond with a yield to maturity of 3.5% and simi-annual compounding (when applicable).

a. Calculate the bond’s effective duration using a 50 basis point shock to the yield.

b. Assuming a 0.75% decline in yield, calculate the estimated % change in price for the bond using your answer in part A.

c. Explain why the estimated change in price using only duration is not accurate.

Please show all work.

Reference no: EM131968084

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