Answer:
Duration of bond is 4.24 years.
Explanation:
Duration of bond = Sum of (present value of cash flow*n)/Price of bond
n = Year in which cash flow is received
Face value of bond = $1,000
Year (n) Cash flow Discount factor at 6% Present value Pv*n
1 $100.00 0.943396226 $94.34 $94.34
2 $100.00 0.88999644 $89.00 $178.00
3 $100.00 0.839619283 $83.96 $251.89
4 $100.00 0.792093663 $79.21 $316.84
5 $1,100.00 0.747258173 $821.98 $4,109.92
$1,168.49 $4,950.98
Duration of bond = 4950.98/1168.49
Duration of bond = 4.24 years
