Question

You own a fixed income asset with a MaCaulay duration of 5 years. If the level of required yields, which is currently at 8%, goes down by 0.10%, how much do you expect the price of the asset to change (in

Answer 1

The price of the asset to change (in percentage ) is 0.463%

Step-by-step explanation:

As per given data

Duration = 5 years

Chnage in the yield rate = -0.10%

Price of the asset change can be calculated using following formula

Percentage price change = -Duration x
`(Change in the yield rate)/(( 1 + Yield rate))`

Placing values in the formula

Percentage price change = -5 years x
`(-0.0010)/(( 1 + 0.8))`

Percentage price change = 0.00463

Percentage price change = 0.463%