Question

Suppose you have a 3.25% coupon bond with a ytm of 1.50 percent and a term-to-maturity of 3 years. The bond pays its coupon ANNUALLY(once per year) and has a face value of $1,000. What is this bond’s price? What is its duration?  

Answer 1

  

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Value of Bond =

Where r is the discounting rate of a compounding period i.e. 0.0150

And n is the no of Compounding periods 3 years

Coupon 3.25%

=

= 1050.96

Duration = (1 / Bond value) * (1*Coupon 1 / (1+r)^1 + 2* Couopn 2 / (1+r)^2 + 3* Coupon 3 / (1+r)^3)

= (1 / 1050.96) * (1*32.50 1 / (1+0.0150)^1 + 2 * 32.50 / (1+0.0150)^2 + 3 * 32.50 / (1+0.0150)^3)

= (1 / 1050.96) * 188.353624984

= 0.18

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