# (Please provide detail solution and show steps using the Business Calculator) Calculate the...

## Question:

(Please provide detail solution and show steps using the Business Calculator) Calculate the duration of a bond with \$1000 par value and a 7.5 percent coupon rate, 4 years until maturity, and a 9 percent yield to maturity? What is the expected change in price if interest rates were to rise by 4%?

## Bond Duration:

A bond's duration is a measure of the bond's interest rate risk. The longer a bond's duration, the more volatile bond price is with respect to changes in interest rates.

Become a Study.com member to unlock this answer! Create your account

We can use the following formula to compute the Macaulay duration:

• {eq}\displaystyle \frac{\sum_{t=1}^T{\frac{tC}{(1 + y)^t} + \frac{TF}{(1 +... Interest Rate Risk: Definition, Formula & Models

from

Chapter 3 / Lesson 6
11K

Interest rate risk is really the risk of two different events (price reduction and reinvestment rate reduction) caused by a change in interest rates. Interest rate risk affects bond investments, but the good news for bond investors is that it can be mitigated or eliminated.