Assume a bond matures in 2 years,has a coupon rate of 6 percent,pays interest annually,and has a face value of $1,000.What is the duration of this bond if it is priced at par?

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Duration measures the sensitivity of a bond's price to changes in interest rates, essentially representing the weighted average time it takes to receive the bond's cash flows. For a bond priced at par with a coupon rate of 6%, paying annually, and maturing in 2 years, the duration can be calculated using the formula for Macaulay duration. The calculation involves weighting each cash flow by the time until it is received and then dividing by the bond's price. In this case, the duration is closer to 1.94 years, considering the present value of the cash flows (interest payments and the principal repayment) and their respective times. This reflects the bond's intermediate sensitivity to interest rate changes, with the duration being less than its total maturity due to the impact of the annual coupon payments.

Assume a Bond Matures in 2 Years,has a Coupon Rate