ABC Corporation has 3-year, 7% annual coupon bonds outstanding. Given an 8.5% yield to maturity, determine the duration of these bonds.

A) 2.70
B) 2.80
C) 2.95
D) 3.12
E) 3.25

Question

ABC Corporation has 3-year, 7% annual coupon bonds outstanding. Given an 8.5% yield to maturity, determine the duration of these bonds.A)  2.70B)  2.80C)  2.95D)  3.12E)  3.25

Kaiya Swenson · Accepted Answer

Final Answer : A, Explanation :  The correct answer is A because the duration of a bond is a measure of its price sensitivity to changes in interest rates. The higher the duration, the more sensitive the bond's price is to changes in interest rates. In this case, the bond has a duration of 2.70, which means that a 1% increase in interest rates would cause the bond's price to decrease by 2.70%.

ABC Corporation has 3-year, 7% annual coupon bonds outstanding. Given an 8.5% yield to maturity, determine the duration of these bonds.

A) 2.70
B) 2.80
C) 2.95
D) 3.12
E) 3.25

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