A $1,000 par value, 7% annual coupon bond matures in 4 years. The bond is currently priced at $1,034.65 and has a YTM of 6.0%. and has a Macaulay duration of 3.61 years. What is the modified duration?

Question

Quizplus · Accepted Answer

Modified duration is calculated as Macaulay duration divided by (1 + YTM/number of coupon periods per year). Given a YTM of 6.0% (or 0.06) and assuming annual coupon payments, the calculation is 3.61 / (1 + 0.06/1) = 3.61 / 1.06 = 3.4056, which rounds to 3.41 years.

A $1,000 Par Value, 7% Annual Coupon Bond Matures in 4