You own $250 mil of the UST 2½ (SA) 3yr bond. The bond is currently trading...

You own $250 mil of the UST 2½ (SA) 3yr bond. The bond is currently trading at the “current” YTM for 3yr bonds. Please compute the Duration of this bond (to two decimal places).

0yr 1yr 3yr 5yr 7yr 10yr 30yr UST 1.26 1.78 2.18 2.43 2.55 2.63 2.90

Expert Solution

Bond Price	$1,009.24
Face Value	1,000
Coupon Rate	2.50%
Life in Years	3
Yield	2.18%
Frequency	2

Macaulay Duration	2.9094
Modified Duration	2.88

Period	Cash Flow	PV Cash Flow	Duration Calc
0	($1,009.24)
1	12.50	12.37	12.37
2	12.50	12.23	24.46
3	12.50	12.10	36.30
4	12.50	11.97	47.88
5	12.50	11.84	59.20
6	1,012.50	948.74	5,692.42
		total	5872.63

Macculay duration = 5872.63/(1009.24/2)=2.9094

Modified duration= 2.9094/(1+(0.028/2))=2.88

jeff jeffy answered 2 years ago

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