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Dear Tutor,
In the question Conejo we are supposed to calculate the duration of the new bond. The bond has a coupon of 3,57.
As the face value of the bond is the same as the market value (100) this means that YTM is the same as the coupon, in this case 3,57%.
The examiner has discounted the cash flows with the YTM (yield curve + spread), but would it be acceptable to discount at 3,57% in order to calculate the duration?Thank you.
What the examiner has done is correct, and to discount at 3.57% would be wrong. However you will still get most of the marks for that part (assuming, as always, that your workings were clear enough for the marker to be able to see what you were doing 🙂 )
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