Question

A bond pays annual interest. Its coupon rate is 11.2%. Its value at maturity is $1,000. It matures in 4 years. Its yield to maturity is currently 8.2%. The modified duration of this bond is ______ years.

            
            A) 4.00            
            B) 3.46
            C) 3.20
            D) 2.95

Answer 1

Correct answer: C) 3.20

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Nm 7 Coupon rate Yield to maturity Settlement date Maturity date 11.20% 8.20% 1/1/2020 1/1/2024 Modified duration 3.20 00

Cell reference -

B 10.112 Coupon rate Yield to maturity Settlement date Maturity date 0.082 =DATE(2020,1,1) =DATE(2024,1,1) Modified duration =MDURATION(C4,C5,C2,C3,1,3)

Hope it will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.