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Exercise

Zero coupon and coupon bond duration

Duration is a measure of interest rate risk that can be applied to any bond, regardless of whether it pays a coupon or not.

In this exercise, you are going to calculate the duration of a zero coupon bond with a ten year maturity, face value of USD 100, and a yield to maturity of 3%, and compare its duration to the same bond paying a 3% annual coupon. numpy_financial has already been imported for you as npf.

Recall that the formula for duration is given by:

\(Duration = \frac{P(down) \ -\ P(up)}{2\ \times\ P\ \times\ \Delta y}\)

Instructions 1/2
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  • 1
    • Find the duration of a 10 year zero coupon bond with a 3% yield, then print the result.
    • 2
      • Find the duration of a 10 year bond with a 3% coupon and 3% yield, then print the result.
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