Question

a. What is the duration of a two-year bond that pays an annual coupon of 11...

a. What is the duration of a two-year bond that pays an annual coupon of 11 percent and has a current yield to maturity of 13.7 percent? Use $1,000 as the face value. (Do not round intermediate calculations. Round your answer to 4 decimal places. (e.g., 32.1616)) (in years)

b. What is the duration of a two-year zero-coupon bond that is yielding 11.5 percent? Use $1,000 as the face value. (in years )

Homework Answers

Answer #1

Dear Students

Please note the solutions

a)

Year Coupen Amount PV @ 13.7% PV * Year
1 110 96.75 96.75
2 1110 858.62 1717.24
955.37 1813.99

Duration = Sum of year * Present Value of Cash flow / Present Value of Cash flow

              = 1813.99 / 955.37

              = 1.90 years

b)

Year Coupen Amount PV @ 11.5% PV * Year
1 110 98.66 98.66
2 1110 892.84 1785.68
991.5 1884.34

Duration = 1884.34 / 991.5

            = 1.90 years

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