Question

A bond has a face value of $1000, fixed coupon rate of 8,3% and 3 years...

A bond has a face value of $1000, fixed coupon rate of 8,3% and 3 years to maturity. The discount rate is 3,3%. What is the Macaulay Duration? State the answer as a number with 2 decimals (for example, 3.12).

Homework Answers

Answer #1

Given that, Face value of bond = $1000

Coupon rate = 8.3%

Discount rate = 3.3%

Term = 3years

Coupon amount = face value × coupon rate

=$1000×8.3%

=$83

Computation of Macaulay duration of bond:

Year cash flows Discounted cash flows year × discounted cash flows
1 $83

$80.35

(83/(1+3.3%)^1)

$80.35
2 $83

$77.79

($83/(1+3.3%)^2)

$155.58
3 $83

$75.30

(83/(1+3.3%)^3)

$225.9
4 $1083

$951.10

(1083/(1+3.3%)^4)

$3804.4
$1184.54 $4266.23

Macaulay duration = sum of (year× Discounted cash flows) /sum of (Discounted cash flows)

=$4266.23/$1184.54

=$3.60years

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