Question

What is the price and duration of a three year, 1000 par, 4% coupon bond earning 3%?

Answer 1

Coupon = 4%*1000 = 40
Number of Periods = 3
YTM = 3%
Price of Bond = PV of Coupons + PV of Par value = 40*(1-(1+3%)^-3)/3%+1000/(1+3%)^3 = 1028.29
Duration using excel

Time(n)	Cash flow=4%*1000/2 = 40	PV of Cash flow=(Cash flow)/(1+3%)^n	PV*Time
1	40	38.83	38.83
2	40	37.70	75.41
3	1040	951.75	2855.24
	Total	1028.29	2969.48
	Maculay Duration	2.89	(=2969.48/1028.29)

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