What is the duration of a $1,000 par value bond with a coupon rate of 8%, a yield-to-maturity of 6%, and 4 years left to maturity? (Assume annual coupon payments)
A) 3.25 years
B) 3.59 years
C) 3.72 years
D) 3.86 years

Question

Quizplus · Accepted Answer

The correct answer is B because the duration of a bond is a measure of its price sensitivity to changes in interest rates. The higher the duration, the more sensitive the bond's price will be to changes in interest rates. In this case, the bond has a duration of 3.59 years, which means that its price will be more sensitive to changes in interest rates than a bond with a shorter duration.

What Is the Duration of a $1,000 Par Value Bond