Question

The current price of an annual coupon bond is 100. The derivative of the price of the bond with respect to the yield to maturity is -700.The yield to maturity is an annual effective rate of 8%. Calculate the duration of the bond.

Answer 1

The duration of the bond = 7.56 years

Step-by-step explanation:

Given the current price = 100

DM = -1 x Current derivative price / Current price

DM = (-1 x -$700 / $100)

DM = 7

Now, D = DM (1 + r)

D = 7 (1 + 0.08)

D = 7.56

The duration of the bond = 7.56 years