A finished FIN-375 Topic 6 bond duration exercise example, pricing three bonds, computing their durations and setting each predicted price change beside the actual one after a rate move. Searches like "fin 375 topic 6 assignment example", "fin375 topic 6 sample" and "fin-375 topic 6 example" land here.
What a finished FIN-375 Topic 6 bond duration exercise looks like
The finished exercise starts with a five-year bond paying a 4 percent annual coupon on 1,000 of face value. At a 5 percent yield it is priced at about 956.71, with a Macaulay duration of about 4.62 years and a modified duration of about 4.40. That figure predicts a 4.40 percent fall if yields rise one point; the actual price at 6 percent is about 915.75, a fall of 4.28 percent. A fifteen-year bond with the same coupon prices at about 896.20, carries a modified duration near 10.80 and loses about 10.09 percent at 6 percent. A twenty-year zero priced at about 376.89 loses about 17.27 percent. The example then points to an asymmetry: when yields fall to 4 percent, the fifteen-year bond gains about 11.58 percent, more than duration predicts, which is convexity working for the holder.
How a FIN-375 Topic 6 example is structured
The exercise is arranged bond by bond and then across all three. It opens with its conventions: annual coupons, a face value of 1,000, yields quoted annually and every bond illustrative. Each bond section lists the cash flows with their dates, discounts them to a price, and computes Macaulay duration as the time-weighted average of those discounted flows, with the weights shown. Modified duration follows as Macaulay duration divided by one plus the yield. A repricing table then gives each bond's predicted and actual price change for a one-point rise and a one-point fall. A convexity paragraph explains why the prediction overstates losses and understates gains. A comparison section ranks the three bonds by sensitivity and explains why longer maturity and lower coupons raise duration. The closing section notes what duration leaves out, credit risk and shifts in the yield curve that are not parallel.
Duration built from dated cash flows
Every coupon, plus the repayment of face value, is weighted by its share of the price and by when it arrives, so the duration can be traced line by line.
Prediction set beside the actual price
For the five-year bond, duration forecasts a 4.40 percent fall and the repriced bond falls 4.28 percent, and the example reports both figures together.
Maturity and coupon raise sensitivity
The fifteen-year coupon bond and the twenty-year zero lose about 10.09 and 17.27 percent for the same one-point rise, in the order their durations predict.
Convexity shown as an asymmetry
A one-point fall lifts the fifteen-year bond about 11.58 percent while a rise costs it about 10.09, a gap that favors the holder and that duration misses.
What duration does not measure
Default risk and twists in the yield curve fall outside the calculation, which the example acknowledges instead of presenting duration as a full account of bond risk.
Where marks go in FIN-375 Topic 6
Fixed income papers that stop at price and yield, with no duration, lose the most, because rate sensitivity is what moves bond prices and the course wants it measured. Confusing Macaulay and modified duration, or using one where the other belongs, produces a price prediction off by the factor of one plus the yield. Weights that ignore discounting, counting each year's cash flow at its face amount, overstate duration for every coupon bond. Papers that report duration's predicted change and never reprice the bond cannot show the gap convexity creates. Treating a zero-coupon bond's duration as anything other than its maturity signals a memorized definition rather than an applied one. Presenting duration as a complete measure of bond risk, with credit quality and curve shape left out, claims more than the number can carry.
Get a FIN-375 Topic 6 example written to your instructions
Send the FIN-375 Topic 6 problems and the rubric shared in your classroom, with the bonds or yields your section supplied. We write a custom example to them, with each bond priced from dated cash flows, Macaulay and modified duration computed, predicted and actual price changes compared and convexity explained, in 24 to 48 hours. The first one is free.
FIN-375 Topic 6 questions, answered
What does modified duration tell an investor?
The approximate percentage change in a bond's price for a one-point change in its yield, with the sign reversed. A modified duration of 4.40 means a one-point rise in yield cuts the price by roughly 4.40 percent. It is a straight-line estimate of a curved relationship, so it works well for small changes and less well for large ones, where convexity pulls the actual change away from the prediction.
Why is a zero-coupon bond so sensitive to rates?
Because its entire payment arrives at maturity, so its Macaulay duration equals its maturity. A twenty-year zero has a duration of twenty years, far longer than a twenty-year coupon bond whose interim payments pull the average earlier. In the example, a one-point rise in yield cuts the zero's price by about 17.27 percent, more than either coupon bond loses.
Is the exercise advice about which bonds to hold?
No. The bonds, yields and prices are illustrative, chosen to show how duration and convexity are measured. Which bonds suit anyone depends on their horizon, tax position, need for income and tolerance for price changes, and the example knows none of those things. It demonstrates the measurement FIN-375 expects and is coursework support, not investment advice.