A three-year, $1,000 bond will pay $100 in interest at the end of each year. With a yield-to-maturity of 8%, its present market price is $1,052. Its duration is

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Quizplus · Accepted Answer

Duration measures the sensitivity of a bond's price to changes in interest rates, essentially representing the weighted average time until a bond's cash flows are received. In this case, the duration of 2.74 years indicates the bond's price sensitivity and the time frame for interest and principal recovery.

A Three-Year, $1,000 Bond Will Pay $100 in Interest at the End