Calculate the duration of a 4-year $1,000 face value bond,which pays 8% coupons annually throughout maturity and has a yield to maturity of 9%.
A) 3.29 years
B) 3.57 years
C) 3.69 years
D) 3.89 years
E) 4.00 years

Question

Quizplus · Accepted Answer

The duration of a bond is calculated using the formula for Macaulay duration, which considers the present value of cash flows. For this bond, the cash flows are $80 annually for 4 years and $1,000 at maturity. The present value of these cash flows is calculated using the yield to maturity of 9%. The weighted average time until these cash flows are received gives the duration, which is approximately 3.57 years.

Calculate the Duration of a 4-Year $1,000 Face Value Bond,which