"Assume a bond with $1,000 par value and has an 7 percent coupon rate that pays interest annually, three years remaining to maturity, and a 9 percent yield to maturity. The duration of this bond is Effective Bond Duration.
Explanation:
- "Assume a bond with $1,000 par value and has an 7 percent coupon rate that pays interest annu the duration of a bond or a bond fundally, three years remaining to maturity, and a 9 percent yield to maturity". The duration of this bond is Effective Bond Duration.
- The bond issuer borrows capital from the bondholder and makes the fixed payments to bondholder at a fixed or a a variable interest rate.
- Bond Duration is an approximate measure of a bond's price and sensitivity to the changes in interest rates.
- Normally, the higher the duration of a bond or a bond fund,the more its price will drop as when the interest rates rise..
- This measure of duration takes into consideration for the fact that expected cash flows will fluctuate as the interest rates changes.
