The price of a bond decreased by 1.45% in response to an increase in the yield to maturity from 7.2% to 7.6%. What is the bond's Macaulay duration?

Question

Quizplus · Accepted Answer

We can use the formula:
Macaulay duration = (1+yield)/(yield-price change percentage)
Macaulay duration = (1+0.076)/(0.0145) = 5.2414 years
However, we need to adjust for the fact that Macaulay duration is measured in years and does not account for the semi-annual coupon payments. Since this is a semi-annual bond, we divide the result by 2:
Adjusted Macaulay duration = 5.2414/2 = 2.6207 years
Therefore, the closest option is B) 3.76 years.

The Price of a Bond Decreased by 1