Bond portfolio duration

CFA Level I Fixed Income
#1

Hi all,

I did a CFA Mock exam and in a question it was asked to calculate the bond portfolio duration. To calculate the portfolio duration we have to use the market value, this is clear. But I don’t understand that the Market value of the bond = price x par amount.

Can anyone help me to understand?

Thank you

#2

Bonds are always quoted at Par -> which implies that the market rate of interest = Coupon on the bond. (Price which is specified as a percent = 100). So 100% * Par = Market Value of the Bond.

If the Coupon > Market Rate of interest => Bond trades at a Premium. This means that Price > 100% -> and then Market value of the bond = Price (say 105% * Par (1000$ usually in the US) = 1050).

When Coupon < Market Rate of interest -> Bond trades at Discount -> Price < 100% (say 95%).

Hope this helps.

#3

Thank you cpk123!