Question

What is the duration for C?

Compute the duration for bond C, and rank the bonds on the basis of their price volatility. The current rate of interest is 7 percent, so the prices of bonds A and B are $1,140 and $1,281, respectively. Round your answer to two decimal places.

Bond	Coupon		Term	Duration
A	9%		10 years	7.20
B	11%		10 years	6.95
C	9%		5 years

Answer 1

Bond duration can be computed using the following formula -

where, y = YTM, c = coupon rate, t = time to maturity in years

or, Duration = 4.27184 years or 4.27 years