Question

Find the duration of a 6% coupon bond making annual coupon payments if it has four years to maturity and a yield to maturity of 5%. (assuming a face value of $1,000)

Answer 1

3.703716

Step-by-step explanation:

The duration can be calculated by dividing the present value of cash flow over time by the present value of cashflow.

Time Cash flow PV of CF PV of CF X t

1 60 $59.41 $59.41

2 60 $58.82 $117.64

3 60 $58.24 $174.71

4 1060 $1,018.64 $4,074.56

Total $1,195.10 $4,426.30

Duration = 4426.30/1195.1

Duration = 3.703716