Question

For the following bond, Par value: 1,000 Coupon rate: 8% paid annually Time to maturity: 3...

For the following bond,

Par value: 1,000

Coupon rate: 8% paid annually

Time to maturity: 3 years

Interest rate: 6%

What is the modified duration?

Select one:

a. 2.6313 years

b. 1.7834 years

c. 2.1555 years

d. 3.1808 years

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Homework Answers

Answer #1
(1+ YTM)^n
YTM Period Coupon payment Coupon * corresponding period Discounting factor Principal Cash flow * corresponding period Discounted value of year weighted cash flow Cash flow for the period Discounted cash flow
6 1.06 1 80 80 1.06 80 75.47169811 80 75.47169811
2 80 160 1.1236 160 142.3994304 80 71.1997152
3 80 240 1.191016 1000 3240 2720.366477 1080 906.7888257
4 30 120 1.26247696 2938.237606 Sum of discounted CF= 1053.460239

duration = (sum of discounted value of weighted year cash flow/sum of discounted value of cash flow)/(1+ytm) = (2938.237/1053.4602)/(1+.06) = 2.6313 years

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