Third Duration Investments has the following assets and liabilities on its balance sheet. The two-year Treasury notes are zero coupon assets. Interest payments on all other assets and liabilities occur at maturity. Assume 360 days in a year.
-What is the duration of this bond?
A)5 years.
B)4.31 years.
C)3.96 years.
D)5.07 years.

Question

Third Duration Investments has the following assets and liabilities on its balance sheet. The two-year Treasury notes are zero coupon assets. Interest payments on all other assets and liabilities occur at maturity. Assume 360 days in a year.  
-What is the duration of this bond?
A)5 years. 
B)4.31 years. 
C)3.96 years. 
D)5.07 years.

Quizplus · Accepted Answer

11efb86f_e84c_74ee_9137_53592d669151_TB1314_00 The duration of a bond is the average time it takes for the investor to receive the present value of all coupon payments and the face value of the bond. The calculation involves taking the weighted average of the cash flows and dividing by the current price. Using the given information, we can calculate the duration of the bond as (2/106.9) x 1 + (2/106.9) x 2 + (2/106.9) x 3 + (2/106.9) x 4 + (102/106.9) x 5 = 4.31 years. Therefore, the best choice is B.

Third Duration Investments Has the Following Assets and Liabilities on Its