Consider a security with a face value of $100 000 to be repaid at maturity.The maturity of the security is three years.The coupon rate is 9% per annum and coupon payments are made semi-annually.The current discount rate is 12% per annum.What is the security's duration (round your answer to two decimals)?
A)2.68 years
B)2.68 half-years
C)3 years
D)0.38 years

Question

Quizplus · Accepted Answer

Duration measures the sensitivity of a bond's price to changes in interest rates, essentially representing the weighted average time until a bond's cash flows are received. In this case, the bond's duration is calculated considering the present value of each cash flow (coupons and the principal repayment) weighted by the time until those cash flows occur, and then dividing by the bond's current price. Given the semi-annual coupon payments and the bond's characteristics, the correct duration in years is 2.68, reflecting the bond's sensitivity to interest rate changes over that time frame.

Consider a Security with a Face Value of $100 000