Compute the duration of an 8%,5-year corporate bond with a par value of $1000 if yield to maturity of 10%.

Question

Quizplus · Accepted Answer

To calculate the duration, we need to use the formula:

Duration = (Present Value of Bond x Time to Maturity x Yield to Maturity) / (1 + Yield to Maturity)

PV of Bond = $1000
Time to Maturity = 5 years
Yield to Maturity = 10%
Using the formula:
Duration = ($1000 x 5 x 10%) / (1 + 10%) = $50 / 1.1 = 45.45

Therefore, the duration of the bond is 4.55 years. The closest option is B, 4.28 years.

Compute the Duration of an 8%,5-Year Corporate Bond with a Par