Bond with: Par Value: $1,000 Maturity: 4 years Coupon Rate: 6% Current Annualized 6-month yield of...
Bond with:
Par Value: $1,000
Maturity: 4 years
Coupon Rate: 6%
Current Annualized 6-month yield of 9%.
Assume that coupon payments are made semiannually to bondholders and that the next coupon payment is expected in 6 months.
1.) What is the bond's duration (annualized)? Compare this with the approximate duration.
Homework Answers
Duration = Sum [ Weight * Period ]
| Period | CF | PVF @4.5% | Disc CF | Weight | Duration |
| 1 | $ 30.00 | 0.9569 | $ 28.71 | 0.0319 | 0.0319 |
| 2 | $ 30.00 | 0.9157 | $ 27.47 | 0.0305 | 0.0610 |
| 3 | $ 30.00 | 0.8763 | $ 26.29 | 0.0292 | 0.0875 |
| 4 | $ 30.00 | 0.8386 | $ 25.16 | 0.0279 | 0.1117 |
| 5 | $ 30.00 | 0.8025 | $ 24.07 | 0.0267 | 0.1336 |
| 6 | $ 30.00 | 0.7679 | $ 23.04 | 0.0256 | 0.1534 |
| 7 | $ 30.00 | 0.7348 | $ 22.04 | 0.0245 | 0.1713 |
| 8 | $ 30.00 | 0.7032 | $ 21.10 | 0.0234 | 0.1873 |
| 8 | $ 1,000.00 | 0.7032 | $ 703.19 | 0.7804 | 6.2432 |
| Duration ( In Six Months) | 7.1807 | ||||
Duration in Years = DUration in SIx Months / 2
= 7.1807 / 2
= 3.59 Years
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