Question

a. What is the duration of a two-year bond that pays an annual coupon of 10.3 percent and has a current yield to maturity of 12.3 percent? Use $1,000 as the face value. (Do not round intermediate calculations. Round your answer to 4 decimal places. (e.g., 32.1616))
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.

a.	Duration		years
b.	Duration		years

Answer 1

a) Coupon = 10.3%*1000 = 103.00,YTM = 12.3%

Time(n)	Cash flow	PV of Cash flow=Cash Flow/(1+r)^n	PV*Time
1	103	91.72	91.7186109
2	1103	874.61	1749.22629
	Total	966.33	1840.9449
	Duration	1.9051	(=1840.9449/966.33)

b) YTM = 11.5%

Time(n)	Cash flow	PV of Cash flow=Cash Flow/(1+r)^n	PV*Time
1	0	0.00	0
2	1000	804.36	1608.71926
	Total	804.36	1608.71926
	Duration	2.0000	(=1608.71926/804.36)

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