duration of a forward start bond

bonosmate · December 13th, 2011, 8:28 am

Do the following 2 bonds have the same duration1st Bond: 4% annual coupon until 20202nd Bond :A 4% bond that pays no coupon for the first 2 yrs but pays a ?higher coupon? thereafter until maturity to compensate for this fact. Both bonds have the same maturity.

bonosmate · December 13th, 2011, 9:20 am

Sorry- I know the answer now!! The bond with the delayed coupon payments would have the longer duration since the average payoff of this bond takes longer than the conventional coupon paying bond.

daveangel · December 13th, 2011, 10:03 am

do the bonds have the same price ?

bonosmate · December 13th, 2011, 4:21 pm

yes daveangel, they would have the same price.

wickedwit · December 18th, 2011, 1:48 pm

so say this forward starting bond starts in 2yrs. Is that added duration equal to something like a zero coupon bond? So that would add around 2yrs of duration? My models don't seem to show that being the case.

harkinsi · November 23rd, 2015, 3:19 pm

Just bumping this chain to see whether there is a response to this question?Essentially two zero coupon bonds that mature in 10yrs from today however, one of the bonds is forward starting by two years. Do they have the same or different duration?