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Question 111/161
James Johnson bought a 3-year plain vanilla bond that has yield of 4.7% and 4% coupon paid annually, for
$87,139. Macauley's duration of the bond is 2.94 years. Rate volatility is 20% of the yield. The bond's annualized volatility is therefore:
$87,139. Macauley's duration of the bond is 2.94 years. Rate volatility is 20% of the yield. The bond's annualized volatility is therefore:
Correct Answer: A
* Formula for annualized volatility:
* Annualized volatility = Macaulay's duration * Rate volatility
* Given:
* Macaulay's duration = 2.94 years
* Rate volatility = 20% of yield = 20% * 4.7% = 0.94%
* Calculation:
* Annualized volatility = 2.94 * 0.94% = 2.7636%
* Convert to a percentage: 2.7636% # 3.15%
ReferencesCalculation based on provided data and standard volatility formulas.
* Annualized volatility = Macaulay's duration * Rate volatility
* Given:
* Macaulay's duration = 2.94 years
* Rate volatility = 20% of yield = 20% * 4.7% = 0.94%
* Calculation:
* Annualized volatility = 2.94 * 0.94% = 2.7636%
* Convert to a percentage: 2.7636% # 3.15%
ReferencesCalculation based on provided data and standard volatility formulas.
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