Answer:
7.82 years
Explanation:
Solution
Recall that:
The price of a bond is currently at = 1050
The yield on the bond = 7%
If the yield increases in 28 point basis, the bond price reduces to = $1027
Now,
We find out the bond duration
Thus,
The change in Price/Initial Price = - Duration * Yield change
=$1050 -$1027 = -23
-23/1050 = - Duration * 0.28%
So,
The duration = 23/(1050*0.28%) = 7.82
The bond duration is 7.82 years
