What is the duration of a two-year bond that pays an annual coupon of 10.7 perce
ID: 2637572 • Letter: W
Question
What is the duration of a two-year bond that pays an annual coupon of 10.7 percent and has a current yield to maturity of 13.1 percent? Use $1,000 as the face value. (Do not round intermediate calculations. Round your answer to 4 decimal places. (e.g., 32.1616))
What is the duration of a two-year zero-coupon bond that is yielding 11.5 percent? Use $1,000 as the face value.
a.What is the duration of a two-year bond that pays an annual coupon of 10.7 percent and has a current yield to maturity of 13.1 percent? Use $1,000 as the face value. (Do not round intermediate calculations. Round your answer to 4 decimal places. (e.g., 32.1616))
Explanation / Answer
(1) Duration = [{107/(1.131)1} *1] + [{1107/(1.131)2} *2] / [107/(1.131)1] + [1107/(1.131)2]
= 94.60 + 1731.03 / 94.60 + 865.51 = 1.9014 years
(2) Duration = [{1000/(1.115)2} * 2] / 1000/(1.115)2
= 1609.01/804.50 = 2.0000 years
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