Estimating effect on bond price using duration

When we know a bond's duration, we can come up with an estimate of the bond's price assuming some expected change in yield.

In this exercise, assume yields are expected to decrease by 1%, what is the estimated percentage change in price and dollar change in price due to duration. The object px, which denotes the price of this bond, is $100 and the bond's duration is 8.545937. To calculate the percentage change using duration, recall the formula: $$-D * \Delta y$$

where $D$ is the duration and $\Delta y$ is the change in yield.

To calculate the dollar change using duration, recall that you multiply the percentage change by the current price. The px object and duration object generated in the prvious exercise have been preloaded in your workspace.

Estimate percentage change (duration_pct_change) based on duration if yields are expected to decrease by 1%.
Estimate dollar change (duration_dollar_change) based on duration_pct_change and px if yields are expected to decrease by 1%.

Take Hint (-30 XP)

Exercise

Estimating effect on bond price using duration

Instructions