Calculate the duration of a two-year corporate bond paying 6 percent interest annually, selling at par.Principal of $20,000,000 is due at the end of two years.
A)2 years.
B)1.91 years.
C)1.94 years.
D)1.49 years.
E)1.75 years.

Question

Quizplus · Accepted Answer

The duration of a bond is calculated as the weighted average time to receive the bond's cash flows. For a bond paying annual interest and selling at par, the duration is slightly less than its maturity. The calculation involves discounting the cash flows and finding the weighted average time, which results in approximately 1.94 years for this bond.

Calculate the Duration of a Two-Year Corporate Bond Paying 6