Question

Calculate the duration of a $2,000, 10% coupon bond with four years to maturity. Assume that all market interest rates are 6.7% for next four years.

Answer 1

Duration of the Bond

Year (1)	Cash Flow (2)	PVIF at 6.70% (3)	Present Value (4) = (3)x (2)	Weight (5)	Duration (6) = (1) x (5)
1	$200	0.93721	$187.44	0.08424	0.08
2	$200	0.87836	$175.67	0.07895	0.16
3	$200	0.82320	$164.64	0.07399	0.22
4	$2,200	0.77151	$1,697.32	0.76282	3.05
TOTAL			$2,225.08	1.00000	3.52 Years

“Thus, the Duration of the Bond would be 3.52 Years”