A bond currently has a price of $1,050. The yield on the bond is 7%. If the yield increases 23 basis points, the price of the bond will go down to $1,037. The duration of this bond is years.

The duration of the bond is 5.8 years

Explanation:

Given that :

Current price of a  bond $1,050

Yield on the bond = 7% = 0.07

If the yield increases 23 basis points, the price of the bond will go down to $1,037

The objective is to determine the duration of the bond.

In order to determine the duration of the bond; we need to first find the change in percentage of the price. Afterwards, this is find the modified duration which quantify the change in percentage  in the market price for every change in the yield to maturity. Then finally to the determination of  the duration of the bond.

Mathematically;

Percentage change in price =

Percentage change in price =

Percentage change in price =

Percentage change in price = −0.01238

Percentage change in price ≅ - 0.0124

Percentage change in price  = - 1.24%

Let recall from the knowledge of our basis points which say;

1 basis point = 1/100

Therefore ; given that if he yield increases 23 basis points, then we have:

23 basis point = 23/100 = 0.23

The modified duration =

The modified duration =

The modified duration = 5.3913 years

Finally, The duration of the bond = Modified duration × (1 + Yield to Maturity)

The duration of the bond =  5.3913 × (1 + 0.07)

The duration of the bond = 5.3913 × 1.07

The duration of the bond = 5.768691 years

The duration of the bond ≅ 5.8 years

both are integral parts of a corporate balance sheet. the cash flow statement, or statement of cash flows, measures the sources of a company's cash and its uses of cash over a specific time period. the income statement measures a company's financial performance, such as revenues, expenses, profits or losses over a specific time period (in fact, it's sometimes called a statement of financial performance).

a cash flow statement shows exactly how much money a company has received and how much it has spent, traditionally over a period of one month. it captures the current operating results and changes on the balance sheet, such as increases or decreases in accounts receivable or accounts payable, and does not include noncash accounting items such as depreciation and amortization. the cash flow generally comes from revenue received as a result of business activity, but it may be augmented by funds available as a result of credit. a cash flow statement is used to determine the short-term viability and liquidity of a company, specifically how well it is positioned to pay its bills and vendors.