Question

Find the duration of a bond with settlement date June 11, 2018, and maturity date December 15, 2027. The coupon rate of the bond is 4%, and the bond pays coupons semiannually. The bond is selling at a yield to maturity of 5%.

Answer 1

The duration of a bond is 7 years and 7 months.

Step-by-step explanation:

The settlement date is the date that the bond transaction is concluded, the date that the buyer must pay for the bond and the seller must deliver the asset.

The maturity date is the date where the seller will receive an amount equal to the principle or nominal amount of the bond.

Thus, the duration of the bond is the period between the settlement date (June 11, 2018) and the maturity date (December 15, 2027).

The period is 7 years and 7 months