Consider a six yearannual bond paying a 5% coupon, with a yield to maturity of 4.5%. What is the duration of the bond?

Question

Quizplus · Accepted Answer

Duration measures the sensitivity of a bond's price to changes in interest rates, incorporating the present value of all future cash flows (coupon payments and the principal repayment) weighted by the time until those cash flows occur. The correct duration of 5.339 suggests that this bond's price would be expected to change by approximately 5.339% for a 1% change in interest rates. This calculation involves the bond's coupon rate, yield to maturity, and time to maturity, and typically requires the use of a financial calculator or software to compute accurately.

Consider a Six Yearannual Bond Paying a 5% Coupon, with a Yield