Question

Find the duration of a 6% coupon bond making annual coupon payments if it has four years to maturity and a yield to maturity of 5%. (assuming a face value of $1,000)

Answer 1

Answer:

3.703716

Explanation:

The duration can be calculated by dividing the present value of cash flow over time by the present value of cashflow.

Time             Cash flow         PV of CF              PV of CF X t  

1                        60                   $59.41                     $59.41  

2                       60                   $58.82                    $117.64  

3                       60                   $58.24                    $174.71

4                     1060                 $1,018.64                 $4,074.56  

Total                                        $1,195.10                  $4,426.30  

Duration = 4426.30/1195.1

Duration = 3.703716