Question

A Treasury bond that settles on October 18, 2016, matures on March 30, 2035. The coupon rate is 5.55 percent and the bond has a yield to maturity of 4.80 percent. What are the Macaulay duration and modified duration?

Macaulay duration:

Modified duration:

Answer 1

Solution.>

The Macaulay duration can be calculated by using excel formla =DURATION (settlement, maturity, coupon, yld, freq)

where:

settlement - Settlement date of the security, maturity - Maturity date of the security, coupon - The security's annual coupon rate, yld - The security's annual yield, freq - Number of coupon payments per year (annual = 1, semi-annual = 2, quarterly = 4).

Particular	Date/Value
Settlement Date(s)	18-10-2016
Maturity Date(m)	30-03-2035
Coupon(c)	5.5%
Yield(y)	4.8%
Frequency(f)	1
Macaulay Duration is calculated as
Macaulay Duration	11.99
	=DURATION(s,m,c,y,f)

Macaulay duration = 11.99

Modified Duration = Macaulay duration/ (1+YTM)

= 11.99/1+4.8%

= 11.44

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