Question

In: Finance

Calculate the duration for the 25-year, 9% coupon bond with semiannual coupon payments. The bond is...

Calculate the duration for the 25-year, 9% coupon bond with semiannual coupon payments. The bond is purchased when the YTM is 7%. Calculate the duration by using nonExcel equation. Calculate the duration by using Excel Duration function

Expert Solution

We can compute duration of bond with following equation:

where,

y = ytm ( Semi-annual, if coupon is payable semi-annually)

c = Coupon rate ( Semi-annual, if coupon is payable semi-annually)

t = time until maturity ( Semi-annual, if coupon is payable semi-annually)

Information provided,

YTM = 7%/2 = 0.035 (semi-annual)

Coupon rate = 9%/2 = 0.045 (semi-annual)

Time until maturity = 25*2 = 50 (semi-annual)

Putting the values in equation

by solving,

thus,

Computation of Duration by Excel function:

Cell reference -

jeff jeffy answered 2 months ago

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