The duration of a 2 year annual 10% bond that is selling for par is:
A) 2.00
B) 1.00
C) 1.91
D) 2.09

Question

Quizplus · Accepted Answer

The duration of a bond is the weighted average of the time it takes to receive all cash flows from the bond, weighted by the present value of each cash flow. For a bond selling at par, the coupon rate is equal to the yield to maturity. Therefore, the duration of a 2 year annual 10% bond selling for par is calculated as follows:

Duration = [(1 x 1) + (1 x 2)] / (1 + 0.10) = 1.91

Therefore, the best choice is C.

The Duration of a 2 Year Annual 10% Bond That