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Question

What will the duration of the bond if the current market value of a bond is Rs.102.50 and the market value decreased by Rs.2.50 when the interest rates increased by 0.5%?

A 4.50 years Correct Answer Incorrect Answer
B 4.88 years Correct Answer Incorrect Answer
C 5.00 years Correct Answer Incorrect Answer
D 2.44 years Correct Answer Incorrect Answer
E 2.50 years Correct Answer Incorrect Answer

Solution

Duration = %change in price/%change in interest rates             = (2.5/102.5)/(0.5%)             = 2.44%/0.5%             = 4.88 years

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