Consider a five-year, 8 percent annual coupon bond selling at par of $1,000. What is the duration of this bond?

Question

Quizplus · Accepted Answer

Duration is a weighted average of the time until each payment is received, weighted by the present value of that payment. To calculate duration, we need to find the present value of each cash flow and the time until each cash flow is received. 
Using the formula for duration, we get:

Duration = [0.08 x (1 - 1/(1.08)^5) / 0.08] + [5/(1.08)^5] 
= 4.31 years

Therefore, the answer is B.

Consider a Five-Year, 8 Percent Annual Coupon Bond Selling at Par