A bond with a 2-year maturity has a coupon rate of 1% and a face value...

A bond with a 2-year maturity has a coupon rate of 1% and a face value of $1,000. The coupons are paid annually and the next coupon is due in one year. The bond’s yield to maturity is 1%. What is this bond’s Modified Duration?

Expert Solution

Period (in years)	Payment	Present value factor @1%	Present value	Duration
(a)	(b)	(c)	(d): (b) × (c)	(a) × (d)
1.00	$ 10.00	0.99009901	$ 9.90	$ 9.90
2.00	$ 1,010.00	0.980296049	$ 990.10	$ 1,980.20
			$ 1,000.00	$ 1,990.10

Macaulay duration=	1990.1/1000		1.99

Modified duration is 1.99 years.

jeff jeffy answered 2 years ago

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