Par Value of Bond = $1,000
Annual Coupon Rate = 8%
Hence, coupon amount = $80
Let us depict the yearly cash flows given by this bond :-
Bond is currently trading at $877.11.
Let us use "Goal Seek" function to find out the discount rate for arriving at the current price of bond
Using Goal seek we find that discount rate =10%
Attaching the calculations:-
Now, let us calculate the Present Value of Weighted Cash Flow, by multiplying the "PV of Cash Flows" column with Years column.
Attaching the calculations:-
To arrive at the Duration we have to divide the sum of "PV of Weighted Cash Flow" by the current market price.
Hence, Duration = (6,178.31 / 877.11) = 7.04 years
Answer is Option C
What is the duration of a 10-year bond, selling for $877.11, with an 8% annual coupon?...
QUESTION 27 Assume that the 1, 2, 3, 5, 10, 20, and 30-year rates were 7%, 6.5 %, 6 6 , 5.4 % , 5.2 % , 5.0 % , and 4.8 %, respectively. What type of yield curve is this? a. Humped. b. Normal. c. Flat d. Inverted. QUESTION 28 What is the duration of a 10-year bond, selling for $877.11, with an 8% annual coupon? a. 6.95 b. 7.04 c. 7.33 d. 7.62.
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