¶ … bond pays you $1,000 at the end of this year (Year 1) and $1,500 at the end of Year 2. The current one-year spot rate is 4% and the current two-year spot rate is 4.5%. Calculate the duration of this bond.
Use DURATION function on Excel ?
Using the partial durations calculated in #4a, how much would the bond's price change if the one-year spot rate decreased by 100 basis points and the two-year spot rate dropped 50 basis points?
Percentage price change = - Duration x Yield change x 100
-2.6 * -0.01 * 100 = 2.6% increase for r1 =3%,
-0.005 * 100 = 1.3% increase...
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