a) A portfolio manager wants to estimate the interest rate risk of a bond using duration....

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a) A portfolio manager wants to estimate the interest rate riskof a bond using duration. The current price of the bond is 98. Avaluation model found that if interest rates decline by 35 basispoints, the price will increase to 101 and if interest ratesincrease by 35 basis points, the price will decline to 96. What isthe duration of this bond?
b) A portfolio manager purchased a bond portfolio with a marketvalue of $75 million. The portfolio’s duration is 12. Estimate thechange in the market value of the bond portfolio for a parallelshift in interest rates of +250 basis points. Comment on thisduration based estimate of the market value change.

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Part a I assume that the duration being referred to in the question is modified duration current price of the bond is 98 change in price Modified Duration x change in yield 05 x Convexity x change in yield2 Case 1if interest rates decline by 35 basis points bps the price will increase See Answer

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a) A portfolio manager wants to estimate the interest rate riskof a bond using duration. The current price of the bond is 98. Avaluation model found that if interest rates decline by 35 basispoints, the price will increase to 101 and if interest ratesincrease by 35 basis points, the price will decline to 96. What isthe duration of this bond?b) A portfolio manager purchased a bond portfolio with a marketvalue of $75 million. The portfolio’s duration is 12. Estimate thechange in the market value of the bond portfolio for a parallelshift in interest rates of +250 basis points. Comment on thisduration based estimate of the market value change.