Calculate the duration of a 7-year $1,000 zero-coupon bond with a current price of $399.63 and a yield to maturity of 14%.
A) 5 years
B) 6 years
C) 7 years
D) 8 years
E) 9 years

Question

Quizplus · Accepted Answer

The formula for calculating the duration of a zero-coupon bond is:

Duration = (Years to Maturity) / (1 + Yield to Maturity)^Years to Maturity

Plugging in the values given in the question, we get:

Duration = 7 / (1 + 0.14)^7
Duration = 3.14 years

Therefore, the closest choice is C) 7 years as it represents the closest whole number to the calculated duration of the bond.

Calculate the Duration of a 7-Year $1,000 Zero-Coupon Bond with a Current