# Bonds- Duration

An insurance company is analyzing three bonds and is using duration as the measure of interest rate risk. All three bonds trade at a yield to maturity of 10% , have maturity of 5 years and have $10,000 par values. The bonds differ only in the amount of annual coupon interest they pay: 8, 10, and 12%

a) What is the duration for each of the bonds?

b) What is the relationship between duration and the amount of coupon interest that is paid?

https://brainmass.com/business/discounted-cash-flows-model/bonds-duration-96503

#### Solution Preview

An insurance company is analyzing three bonds and is using duration as the measure of interest rate risk. All three bonds trade at a yield to maturity of 10% , have maturity of 5 years and have $10,000 par values. The bonds differ only in the amount of annual coupon interest they pay: 8, 10, and 12%

a) What is the duration for each of the bonds?

Duration of bond

Duration is the average time of each payment

Duration=( 1 x PV(C1)+2 x PV(C2)+3 x PV(C3)+4 x PV(C4)+---)/V=

V=summation of PV ( C )

PV (C) is the present value of cash flow

Bond 1

Par value= ...

#### Solution Summary

Calculates duration of bonds and examines the relationship between duration and the amount of coupon interest that is paid.