What is the duration of a bond with three years to maturity and a coupon of 6 percent paid annually if the bond sells at par? (Round your answer to 5 decimal places. (e.g., 32.16161)
Duration measures how sensitive the bond is to changes in the market interest rate.
The formula for duration and the calculations are in the attached word file in a clear form.
D=(C[((1+r)^(N+1)-(1+r)-R*N)/(r^2 (1+r)^N )]+ (F*N)/(1+r)^N )/P_o
Where C ...
This solution shows the calculation of duration for a 3-year bond for a bond selling at par, using the duration formula.