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Bond Duration **Title Edited**

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TigerWho    0

Finance Question...Thanks for the help in advance...

We have T-Bonds that have have a 5 year maturity paying 5% coupon semi-annually compounded and selling at par, valued at $175,000. I am looking for Duration.

I can't figure out if YTM = the 5% b/c they are valued at par or do I need to calculate it?

  • #1

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Leet8s    1

well when a coupon bond is priced at par, then the coupon rate has to equal YTM. the way ive always done duration for a coupon paying bond was to be given the zero-rate yield curve and then take each cash flow, multiply each of them by the corresponding dollar duration at each future cash flow (this is based off of a formula using zero rates) and then divide by the sum of the cash flow by the zero-price at each time. Duration = Dollar Duration/Price and you can do this for every bond if you know the yield curve.

I'm sure there is a way to figure this out but sorry i'm way too lazy. look into the weighted value of each cash flow in comparison to total cash flow and price.

  • #5

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TigerWho    0

well when a coupon bond is priced at par, then the coupon rate has to equal YTM. the way ive always done duration for a coupon paying bond was to be given the zero-rate yield curve and then take each cash flow, multiply each of them by the corresponding dollar duration at each future cash flow (this is based off of a formula using zero rates) and then divide by the sum of the cash flow by the zero-price at each time. Duration = Dollar Duration/Price and you can do this for every bond if you know the yield curve.

I'm sure there is a way to figure this out but sorry i'm way too lazy. look into the weighted value of each cash flow in comparison to total cash flow and price.

TY

  • #6

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yogiblair    0

All I have to say in response to Leet8s post is ..........

WHAT???????????????

lol I so didn't understand a damn thing you said, but it sounds like you know what you're talking about, so it was nice of you to help the guy out.

  • #7

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