Asked by Viviana Paola on Jul 06, 2024
Verified
The duration of a par-valueannual bond with a coupon rate of 8.7% and a remaining time to maturity of 6 years is
A) 6.0 years.
B) 5.1 years.
C) 4.27 years.
D) 3.95 years.
E) None of the options are correct.
Coupon Rate
The annual interest rate paid by a bond, expressed as a percentage of the bond's face value, determining the periodic interest payments to bondholders.
Par-Value
The nominal or face value of a bond or stock, as stated by the issuer.
Duration
A measure of the sensitivity of a bond’s price to changes in interest rates, expressed as the weighted average time to receive the bond's cash flows.
- Learn about the concept of bond duration and the formulas used in its calculation.
- Understand the impact of coupon rates and maturity on bond duration.
Verified Answer
MT
Maria TerraziJul 13, 2024
Final Answer :
E
Explanation :
The duration of a bond is a measure of the sensitivity of its price to changes in interest rates, incorporating the present value of all future cash flows (coupon payments and the repayment of principal) weighted by the time until those cash flows occur. The given options do not provide enough information to calculate the exact duration without knowing the yield to maturity (YTM) or the discount rate used for present value calculations. The duration of a bond is typically less than its time to maturity, except for zero-coupon bonds, but the exact figure requires a specific calculation that isn't possible with the information provided.
Learning Objectives
- Learn about the concept of bond duration and the formulas used in its calculation.
- Understand the impact of coupon rates and maturity on bond duration.