I am looking at effective duration for a zero coupon bond.
I thought it would be equal to its maturity.
When calculating the effective duration of my 0 coupon bond on excel I don’t exactly get the maturity meaning there is some noise. (e.g. maturity is 15 whereas effective duration is 14.2). I suspect this is due to annual compounding instead of continuous compounding but I’d be curious to have your view on it .
where YTM is the yield to maturity for one coupon period.
A zero coupon bond’s Macaulay duration is its maturity (100% of the present value is paid at maturity). Unless the bond is callable or putable, its effective duration equals its modified duration, so its effective duration should be slightly shorter than its time to maturity.
In your example, it appears that the bond’s YTM is about 5.6%.