Question

A bond has annual coupons, $1000 par value, 2 years to maturity, 8% coupons and a 6% yield. Calculate the Macaulay Duration. The settlement date (purchase date) is 1/1/2030 and maturity date is 1/1/2032.

Give your answer to two decimal place.

Answer 1

The answer is "1.93 years".

Step-by-step explanation:

`Macaula \ \ duration \ \ \ \ \ \ \ \ \ \ 1000 * 8\%\\\\`

`years \ \ \ \ cash \ flows \ \ \ \ pv\ of \ 6\%\ \ \ \ present \ value \ \ \ \ current \ value \ \ \ \ pv/current \ value \ \ \ (pv)/(cp)* t`
`\$80.00\ \ \ \ \ \ \ 0.9434 \ \ \ \ \ \ \ \$75.472 \ \ \ \ \ \ \ \$1,036.67 \ \ \ \ \ \ \ 0.0728 \ \ \ \ \ \ \ 0.0728\\\\\$ 1,080.00 \ \ \ \ \ \ \ 0.8900 \ \ \ \ \ \ \ \$961.196 \ \ \ \ \ \ \ \$1,036.67 \ \ \ \ \ \ \ 0.9272 \ \ \ \ \ \ \ 1.8544\\\\`

`\$ 1,036.668 \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 1.92772\\\\`

that's why the Macaula duration is 1.93 years.