# The current price of an annual coupon bond is 100. The derivative of the price of the bond with...

## Question:

The current price of an annual coupon bond is 100. The derivative of the price of the bond with respect to the yield to maturity is -700. The yield to maturity is an annual effective rate of 8%.

Calculate the duration of the bond.

## Bond Duration:

The duration of a bond is a measure of a bond's interest rate risk. Specifically, the duration indicates the change in bond price given a 100 basis points, or 1 percentage, change to the bond's yield to maturity.

## Answer and Explanation:

Become a Study.com member to unlock this answer! Create your account

The duration of the bond is 7.56.

Let {eq}P {/eq} denote the bond price, and {eq}y{/eq} denote the bond's yield to maturity. Then the modified...

See full answer below.

#### Learn more about this topic: Interest Rate Risk: Definition, Formula & Models

from

Chapter 3 / Lesson 6
11K

Interest rate risk is really the risk of two different events (price reduction and reinvestment rate reduction) caused by a change in interest rates. Interest rate risk affects bond investments, but the good news for bond investors is that it can be mitigated or eliminated.