Question

A coupon bond pays annual interest, has a par value of Rs.1000, matures in 4 yrs, has a coupon rate of 10%, and has a yield to maturity of 12%. What is the current yield on this bond?​

Answer 1

Explanation:

Bond’s Duration = ΣPV×t ÷ ΣP

Bond Price = (1/(1+R)^t)((coupon*((1+R)^t-1)/R)+Face Value)

ΣP = {100 × (1.123 -1) ÷ 0.12 + 1000} ÷ 1.123

= 951.6

Here 1 ÷ 1.12 = 0.89286, so a^t = 0.711787

ΣPV × t = 100 × 8.33336 × [0.288213 ÷ 0.10714286 – 3 × 0.711787] + 3000 × 0.711787

= 833.336 × (2.689988 – 2.135361) + 2135.361

= 462.19 + 2135.36 = 2597.55

So, Duration of the Bond

= 2597.55 ÷ 951.6

= 2.73 years

when matures in 3 years

you do matures in 4 years ,like this sum