Assuming a flat term structure of interest rates of 5 percent, what is the duration of a zero-coupon bond with 5 years remaining to maturity? A) 5.00. B) 3.76. C) 4.35. D) 6.34.

5 years Since you have a bulk payment at maturity…

I think for a Zero coupon bond, duration is always equal to its maturity.

Think about it logically. Duration is the weighted average of time in years until each cash flow will be received. For a zero coupon bond you get one cash flow at a specific year. For a 5 year zero coupon bond, you get 1 cash flow in 5 years. The weighted average would just be 5.

This was too easy… Ans should be A) 5 - Dinesh S

yeh obviously 5… i always find it helps to roughly think of duration as the time it takes to receive back your initial investment… its not exact, but it helps you think about it in a less ‘math-sy’ way…

You have that backwards. Macauley is useful for continually compounded yields. Modified is used for coupon bonds. A zero has continuously compounded interest rates because that’s how it’s priced.