0. What is the modified duration of a bond with a coupon rate of 7.5 percent, and a yield to maturity of 8.2 percent? This bond pays interest semiannually. It has a Macaulay duration of 6.7 years.

Question

Quizplus · Accepted Answer

Modified duration is a measure of the bond's sensitivity to changes in interest rates. It can be calculated as Macaulay duration divided by (1 + yield to maturity/number of coupon periods per year). In this case, the bond has a semiannual coupon, so the number of coupon periods per year is 2. Therefore, the modified duration is:

Modified duration = 6.7 / (1 + 0.082/2) = 6.44 years

Option C) is the correct answer.

0 What Is the Modified Duration of a Bond with a Coupon