# Discuss About Duration Formula For Impact Of Change In Interest Rates On Value Of A Bond

Question

A bank has a portfolio of residential fixed interest mortgage bonds (bonds secured on residential mortgages) with a market valuation of €3mn, and with a modified duration of D = 7 years.

• State the duration formula describing the impact of a change of interest rates (Δi) on the value of this bond portfolio (P). Using this formula to estimate the impact of a rise of interest rates of 100 basis points on the value of this holding, in % and in €?
• Explaining your answers, provide two reasons why the actual impact might be different than this simple calculation.
• Briefly discuss the pros and cons of using a Value at Risk calculation, instead of duration, to describe the market risk of this portfolio of residential fixed interest mortgage bonds.

Summary

The question belongs to Finance and it discusses about duration formula describing impact of change in interest rates on the value of a bond portfolio.

Total Word Count 615

• Rasha

this is a very good website

• maani

I have 50 questions for the same test your page is showing only 28

• joeanne

• joeanne

hi can anyone help or guide me to my assignments. thanks

• Monik

• Cristina

This solution is perfect ...thanks

• Janete

Hello Allison,I love the 2nd image that you did! I also, had never heard of SumoPaint, is something that I will have to exolpre a bit! I understand completely the 52 (or so) youtube videos that you probably watched. Sometimes they have what you want, sometimes they don't! However, it is always satisfying when you are able to produce something that you have taught yourself. Great job!Debra 0 likes

• Sandeep

Perfect bank of solution.

• Oxana

great !

• Paul Brandon-Fritzius

thanks for the quick response. the solution looks good. :)

• tina Johnson

thnx for the answer. it was perfect. just the way i wanted it.

• Giuseppe

works fine.