Question

An annual coupon bond has a coupon rate of 7.1%, face value of $1,000, and 4 years to maturity. If its yield to maturity is 7.1%, what is its Modified Duration? Round to three decimal places.

Answer 1

rate positively ..

	Cash	Value	PV of	* Year No.
Period	Flows	Factors	Cash Flows	(for Duration)
		1.000
1	71.00	0.934	$66.29	$66.29
2	71.00	0.872	61.90	123.80
3	71.00	0.814	57.79	173.38
4	1,071.00	0.760	814.01	3,256.05
Total			1,000.00	3,619.53
therefore Duration of the bond = 3619.53/1000	3.62	Year
Modified duration = duration/(1+YTM/n)
			3.62/(1+7.1%/1)	3.380
ans =					3.380