Question

A bond has a face value of $1000, fixed coupon rate of 10,3% and 3 years to maturity. The discount rate is 5,3%. What is the Macaulay Duration? State the answer as a number with 2 decimals (for example, 3.12).

Answer 1

Face value of bond = $1,000 Coupon rate = 10.3% Term = 3 Years Discount rate = 5.3% Coupon amount = Face value * Coupon rate = $1,000 * 10.3% = $103 Computation of Macaulay duration of bond Year Cash flows PVIF @ 5.3% Discounted cash flows Year * Discounted cash flows 1 $103 0.949667616 $97.82 $97.82 2 $1030.901868582 $92.89 $185.78 3 S103 0.856475386 $88.22 $264.65 $1,103 0.813366938 $897.14 $3,588.57 $1.176.07 $4,136.83 Macaulay duration = Sum of (Year * Discounted cash flows) / Sum of (Discounted cash flows) = $4,136.83 / $1,176.07 = 3.5175035 Years = 3.52 Years Ans: 3.52 Years