Assume a 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 ____ years.

Question

Quizplus · Accepted Answer

The duration of a bond is a measure of the weighted average time until the bond's cash flows are received. For a bond with a coupon rate lower than its yield to maturity, the duration will be less than the time to maturity. Calculating the duration using the formula for Macaulay duration, considering the bond's cash flows and discounting them at the yield to maturity, results in approximately 2.8 years.

Assume a Bond with a $1,000 Par Value and a 7