What is the duration of a 2-year bond that pays a coupon of 8% per annum semiannually? It has a face value of $100. The yield on the bond is 10% per annum with continuous compounding.

Duration Duration of a bond that provides cash flow c; at time t, is where B is its price and y is its yield (continuously compounded) This leads to AB =-DAY Duration Continued When the yield y is expressed with compounding m times per year BDAY 1+ y/m The expression D 1+ y/m is referred to as the "modified duration