Asked by
ashish kachhap
on Dec 09, 2024Verified
What is the duration of a zero-coupon bond with five years to maturity that is currently priced at $980 and has an interest rate of 8%?
A) 4.86 years
B) 2.5 years
C) 10 years
D) 5 years
E) Cannot be determined with the information provided.
Zero-Coupon Bond
A type of bond that does not pay periodic interest but is issued at a discount to its face value and matures at face value.
Duration
In finance, duration measures the sensitivity of the price of a bond or other fixed-income investment to a change in interest rates, reflecting the weighted average time until payments are received.
Maturity
The state or moment when a financial instrument, such as a bond or loan, reaches its due date and principal is to be paid back.
- Recognize the concept of bond duration and its implications for interest rate risk.
Verified Answer
GB
Learning Objectives
- Recognize the concept of bond duration and its implications for interest rate risk.