Calculate the duration (measured in six-monthly periods)of a bond with a price of $100,two years to maturity,and yield and coupon rates of 5% and 10% p.a.respectively.

A) $ 3.65 $
B) $ 3.74 $
C) $ 3.79 $
D) $ 3.82 $

Question

Calculate the duration (measured in six-monthly periods)of a bond with a price of $100,two years to maturity,and yield and coupon rates of 5% and 10% p.a.respectively.

A) $ 3.65 $
B) $ 3.74 $
C) $ 3.79 $
D) $ 3.82 $

Quizplus · Accepted Answer

The bond will have periodic cash flows of $5 for three periods,with the last cash flow being $105 in period four.The weights of the PV of these cash flows are 0.045,0.044,0.042 and 0.869.Multiplying each by the time period each occurs gives a duration of 3.74.

Calculate the Duration (Measured in Six-Monthly Periods)of a Bond with a Price