Assume that a 5-year bond pays interest of $110 once a year (1 payment / year) and will mature for $1,000. Also assume that the yield to maturity on this bond is currently 12 percent. Given this information, determine the duration of this bond. Enter your answer in decimal format, truncated to 2 decimal places. For example, if your answer is 7.1186 years, enter "7.11".
Assume that a 5-year bond pays interest of $110 once a year (1 payment / year) and will mature for $1,000. Also assume that the yield to maturity on this bond is currently 12 percent. Given this information, determine the duration of this bond. Enter your answer in decimal format, truncated to 2 decimal places. For example, if your answer is 7.1186 years, enter "7.11".
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:Assume that a 5-year bond pays interest of $110 once a year (1 payment/year) and will mature for
$1,000. Also assume that the yield to maturity on this bond is currently 12 percent. Given this
information, determine the duration of this bond.
Enter your answer in decimal format, truncated to 2 decimal places. For example, if your answer is
7.1186 years, enter "7.11".
Expert Solution
Step 1
STEP 1
Bond Duration can be used to calculate how much an interest rate change will likely affect bond prices. Bond duration is a measurement of interest rate risk, to put it more precisely. Investors can decide how bonds fit into a larger investment portfolio by understanding bond length.
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