Question

A bond with a coupon rate of 9 percent sells at a yield to maturity of 10 percent. If the bond matures in 10 years, what is the Macaulay duration of the bond? What is the modified duration? (Do not round intermediate calculations. Round your answers to 3 decimal places.)

Answer 1

Year	Cash Flows	PV	PV/Price	(PV/Price)*Years
1	9	8.18	0.087	0.087
2	9	7.44	0.079	0.158
3	9	6.76	0.072	0.216
4	9	6.15	0.065	0.262
5	9	5.59	0.060	0.298
6	9	5.08	0.054	0.325
7	9	4.62	0.049	0.344
8	9	4.20	0.045	0.358
9	9	3.82	0.041	0.366
10	109	42.02	0.448	4.478
	Price	93.86	Macaulay Duration	6.892

Modified Duration = Macaulay Duration/ ( 1+(YTM/frequency of coupons) )

= 6.892 / (1.1)

=6.266