Question

A T-bond with semi-annual coupons has a coupon rate of 3%, face value of $1,000, and 2 years to maturity. If its yield to maturity is 4%, what is its Macaulay Duration? Answer in years, rounded to three decimal places

Answer 1

Calculating Bond Price,

Using TVM Calculation,

PV = [FV = 1,000, PMT = 15, N = 4, I = 0.04/2]

PV = $980.96

Macaulay Duration = [0.50(15)/(1.02) + 1(15)/(1.02)² + 1.50(15)/(1.02)³ + 2(1015)/(1.02)⁴]/980.96

Macaulay Duration = [7.35 + 14.42 + 21.20 + 1,875.41]/980.96

Macaulay Duration = 1.956 years