A bond pays annual interest. Its coupon rate is 8.1%. Its value at maturity is $1,000. It matures in 4 years. Its yield to maturity is currently 5.1%. The duration of this bond is _______ years. 3.60 3.20 3.43 4.00
Correct answer is 3.60
Calculation of Duration of bond
| Time of years | Cash Flow | PV Factor @5.1% | Present value | Time * PV |
| 1 | 81 | .95 | 76.95 | 76.95 |
| 2 | 81 | .91 | 73.71 | 147.42 |
| 3 | 81 | .86 | 69.66 | 208.98 |
| 4 | 1081 | .82 | 886.42 | 3545.68 |
| TOATL | 1106.74 | 3979.03 | ||
So Duration = 3979.03 / 1106.74 = 3.60
A bond pays annual interest. Its coupon rate is 8.1%. Its value at maturity is $1,000....