The duration of a $1000, 2-year, 7% coupon bond (interest paid annually) is _____ when market rates are 8%?

Question

Quizplus · Accepted Answer

The duration of a bond is calculated as the weighted average time to receive the bond's cash flows. When the market rate is 8%, the bond's cash flows are discounted at this rate. The bond pays $70 annually and $1070 at maturity. Calculating the present value of these cash flows and their respective weights, the duration is approximately 1.934 years.

The Duration of a $1000, 2-Year, 7% Coupon Bond (Interest