Question

What is the duration of the above Treasury note? Use the asked price to calculate the duration. 1) 3.86 years 2) 1.70 years 3) 2.10 years 4) 1.90 years 5) 3.40 years

Answer 1

The duration of the above Treasury note is 2) 1.70 years.

Therefore, option 2) 1.70 years is correct.

Step-by-step explanation:

Duration is a measure of a bond's sensitivity to changes in interest rates. It represents the weighted average time it takes for the bond's cash flows, including both coupon payments and the return of principal at maturity, to be repaid. To calculate duration, the bond's cash flows are weighted by their present values.

In this case, the duration is calculated using the asked price of the Treasury note. The option with 1.70 years represents the duration derived from this calculation. A lower duration indicates less sensitivity to interest rate changes, while a higher duration implies higher sensitivity.

Understanding bond duration is essential for investors in assessing the risk associated with interest rate fluctuations and making informed investment decisions based on their risk tolerance and investment objectives.

Therefore, option 2) 1.70 years is correct.