Calculate the Macaulay duration for a 5-year $1,000 par value bond,with a 6% coupon and a yield to maturity of 8%.Interest is paid annually.
A) 6.44 years
B) 5.25 years
C) 4.44 years
D) 2.50 years
E) None of the above

Question

Quizplus · Accepted Answer

The price of the bond = $920.15 =
 $60 \left( \frac { 1 - \frac { 1 } { 1.08 ^ { 5 } } } { .08 } \right) + \frac { 1000 } { 1.08 ^ { 5 } }$ 
The present value of the weighted cash flows = $4084.82 =
60/(1.08)+ 120/(1.08)² + 180/(1.08)³ + 240/(1.08)⁴ + 5300/(1.08)⁵
Macaulay duration = 4084.41/920.15 = 4.44 years

Calculate the Macaulay Duration for a 5-Year $1,000 Par Value