Question

Compute the Macaulay Duration of a ten-year 8.8% bond with a par value of $25,000 with semiannual coupons and a redemption value of $22,000. The bond is priced to yield a nominal annual interest rate of 6%.

Answer 1

Time Period	Cf	Period x cash flow	PV of $1 at 4.4%	PV of cash flow
1	1100	1100	0.957854406	1053.64
2	1100	2200	0.917485063	2018.467
3	1100	3300	0.87881711	2900.096
4	1100	4400	0.841778841	3703.827
5	1100	5500	0.806301572	4434.659
6	1100	6600	0.772319514	5097.309
7	1100	7700	0.739769649	5696.226
8	1100	8800	0.708591618	6235.606
9	1100	9900	0.678727603	6719.403
10	1100	11000	0.650122225	7151.344
11	1100	12100	0.622722438	7534.942
12	1100	13200	0.596477431	7873.502
13	1100	14300	0.571338536	8170.141
14	1100	15400	0.547259134	8427.791
15	1100	16500	0.524194573	8649.21
16	1100	17600	0.502102081	8836.997
17	1100	18700	0.480940691	8993.591
18	1100	19800	0.46067116	9121.289
19	1100	20900	0.4412559	9222.248
20	23100	44000	0.422658908	18596.99
Sum				140437.3
Macaulay Duration = 140437.3/25000				5.617491