Question

1. You sold a security which requires you to pay $728.50 two years from now and $715.80 ten years from now. The yield to maturity is 5%. The Macaulay duration of your liability is ___.

   	A.	4.8
   	B.	5.4
   	C.	5.2
   	D.	6.2

Answer 1

Year	Cash Flow	PV Factor	PV Of Cash Flow	Weight of cash flow	Weight * Year
a	b	c=1/1.05^a	d=b*c	e=d/1021.70
2	$             728.50	0.90703	$                 660.77	0.6006	1.2012
10	$             715.80	0.61391	$                 439.44	0.3994	3.9941
Total			$             1,100.21	1.00000	5.2
	Macaulay Bond Duration =5.2 years