Can anybody please help me out with the below question with a brief explanation:-
A 10-year zero coupon bond is callable annually at par (its face value) starting at the beginning of year 6. Assume a flat yield curve of 10%. What is the bond duration? A- 10 Years B- 5 Years C- 7.5 Years D- Cannot be determined based on the data given.
According to me it should be 10 years as the duration of a zero coupon bond is always equal to its maturity. But I am not getting convinced with my answer because of the callable feature in the question. Can somebody please explain me in context of the callable feature on the zero coupon bond?
Thanks in advance!!