A $1,000 par value bond pays an annual coupon of 10.0% and matures in 4 years....
A $1,000 par value bond pays an annual coupon of 10.0% and matures in 4 years. If the bond sells to yield 7%, what is the modified duration of this bond?
a) The regular duration is:
b) The modified duration is:
Homework Answers
| Time(n) | Cash flow=10%*1000=100 | PV of Cash flow=(Cash flow)/(1+7%)^n | PV*Time |
| 1 | 100 | 93.46 | 93.45794393 |
| 2 | 100 | 87.34 | 174.6877457 |
| 3 | 100 | 81.63 | 244.8893631 |
| 4 | 1100 | 839.18 | 3356.738933 |
| Total | 1101.62 | 3869.77 | |
| Maculay Duration | 3.51 | (=3869.77/1101.62) | |
| Modified Duration | 3.28 | (=Maculay Duration/(1+YTM) |
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