单选题 A non-callable bond with 18 years remaining maturity has an annual coupon of 7 percent and a $1000 par value. The current yield to maturity on the bond is 8 percent. Which of the following is closest to the effective duration of the bond?

A、

A. 9.63.
B、

B. 11.89.
C、

C. 8.24.

【正确答案】 A

【答案解析】
First, compute the current price of the bond as: FV=$1000, PMT=$70, N=18, I/Y=8%, compute PV=$906.28. Then compute the price of the bond if rates rise by 50 basis points to 8.5% as: FV=$1000, PMT=$70, N=18, I/Y=8.5%, compute PV=$864. 7. Then compute the price of the bond if rates fall by 50 basis points to 7.5% as: FV=$1000, PMT=$70, N=18, I/Y=7.5%, compute PV=-$951.47. The formula for effective duration is: (V_{_}-V₊)/(2V₀△y). Therefore, effective duration is: ($951.47-$864.17)/(2×$906.28×0.005)=9.63.