Question

In: Finance

what is the duration of a four year bond with a 10 percent coupon paid semi...

what is the duration of a four year bond with a 10 percent coupon paid semi annually and giving a 8 percent rate of return ?

Solutions

Expert Solution

Years Cashflow Present value calculation Present value Duration D = (PV*T)
0.5 50 50/(1+4%)^1 48.07692308 24.04
1 50 50/(1+4%)^2 46.22781065 46.23
1.5 50 50/(1+4%)^3 44.44981793 66.67
2 50 50/(1+4%)^4 42.74020955 85.48
2.5 50 50/(1+4%)^5 41.09635534 102.74
3 50 50/(1+4%)^6 39.51572629 118.55
3.5 50 50/(1+4%)^7 37.99589066 132.99
4 1050 1050/(1+4%)^8 767.2247153 3068.90
Total 1067.33 3645.59
Macaulay Duration = Duration D / Present value of cashflows Macaulay Duration =3645.59 / 1067.33 = 3.42

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