Question

a bond has a face value of $1,000, an annual coupon rate of 7 percent, yield to maturity of 10 percent, and 20 years to maturity. the bond's duration is

Answer 1

The bond that has a face value of $1,000 has a duration of 10 years.

What is a bond?

A bond is a type of security in the financial world where the issuer (debtor) owes the holder (creditor) a debt and is required, depending on the terms, to repay the bond's principal (i.e., the amount borrowed) at the bond's maturity date as well as interest (referred to as the coupon) over a predetermined period of time. The interest is typically due at regular intervals, such as every six months, once a year, and less frequently at other times. To finance long-term investments or, in the case of government bonds, to finance immediate expenses, the borrower can obtain external funds through the sale of bonds. Both bonds and stocks are considered to be forms of security, but the main distinction between the two is that (capital) stockholders have an equity stake in a company, whereas bondholders have a creditor stake.

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