Bond T is a coupon bond with a coupon rate of 2% maturing in 3 years....

Bond T is a coupon bond with a coupon rate of 2% maturing in 3 years. The bond pays coupon annually, and has a face value of $100.15. What is the Macaulay duration of the coupon bond

Expert Solution

Period	Cash Flow from Bond	Discounting factor = 1/(1+R)^Y	PV of the cash flows = Cash flow x Df	Weighted cash flow = Period x Cash flow	Present value of weighted cash flow = Weighted Cash flow x Df
Y	CF	Df = 1/(1+2%)^Y	PV = CF x Df	WCF = CF x Y	WPV = WCF x Df
1	2.0030	0.9804	1.9637	2.0030	1.9637
2	2.0030	0.9612	1.9252	4.0060	3.8504
3	102.1530	0.9423	96.2611	306.4590	288.7832

		Total = P = Price of Bond =	100.1500	Total = Weighted Price = WP	294.5973

Macaulay Duration = WP/P = 294.5973 / 100.15 =

2.9416 years

jeff jeffy answered 2 years ago

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