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Consider an annual-pay bond with a $1,000 par value and a 7 percent coupon rate, three...

Consider an annual-pay bond with a $1,000 par value and a 7 percent coupon rate, three years remaining to maturity, and a 9 percent yield to maturity. The duration of this bond is closest to: Group of answer choices 2.8 years 2.63 years 2.5 years

Solutions

Expert Solution

Duration:
Duaration = Sum [ Weight * Year ]

Particulars Amount
Coupon Amount $           70.00
Maturity Value $     1,000.00
Disc Rate 9.0000%

Duration:

Year Cash Flow PVF@ 9 % Disc CF Weight Wt * Year
1 $                70.00                     0.9174 $      64.22     0.0676         0.0676
2 $                70.00                     0.8417 $      58.92     0.0621         0.1241
3 $                70.00                     0.7722 $      54.05     0.0569         0.1708
3 $           1,000.00                     0.7722 $    772.18     0.8134         2.4401
Duration in Years 2.8027

Duration of Bond is 2.80 Years

OPtion A is correct.

jeff jeffy answered 1 year ago
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