Computing duration of a bond portfolio

Hello everyone,

Currently I am studying for my Banking, Insurance & Risk exam and I cant get past one question.

What is the duration of a 2 year 30M loan @ 3% and 3 year 50M loan @ 7% (both assets). The yield curve is flat and currently 1,75%. The answer should be 2.06, however, no matter what method I use, I can not get to that answer.

I really hope someone can help me.
Thanks in advance

Kind regards,

Are these interest-only loans or amortizing loans?

How frequent are the payments?

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Thanks for replying. They are annual paying bonds actually. Somehow I always end up at 2.53 instead of 2.06

I get 1.97 years for the 2-year bond, 2.77 years for the 3-year bond, and 2.48 years as the weighted average.

Do they show you any calculations, or simply the answer?

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This is all I got.

They are asking for duration of assets, which includes cash (duration = 0).

So the weighted duration is (1.9712 x 30.73 + 2.8219 x 57.61 + 0 x 20)/(30.73 + 57.61 + 20) = 2.06.


Yes: you have to include cash.

Easier to do the problem when you have all of the information.

Apparently they were looking for the Macaulay duration; I was calculating modified duration.


Thanks for your answers. Somehow I was unaware of the addition of the cash.