Question

Compute the Macaulay duration for a 10-year zero- coupon bond having a year to maturity of 6%.

Please work out the problem in detail or step by step rather. Thank you.

Answer 1

Macaulay duration is the time taken by the investor to get back amount invested in bonds through interest and principal repayments.

In case of zero coupon bond,no interest is paid by bond during the life of bond or we can say there is no cash flow during the tenure of bond and cash flow is received to investor which is face value of bond at the time of maturity

Hence ,Macaulay duration of zero coupon bond = Time to maturity

Hence Macaulay duration of zero coupon bond = 10 years