A bond has a Macaulay duration of 5.5, a yield to maturity of 6.2%, a coupon rate of 6.5%, and semiannual interest payments. What is the bond's modified duration?

Question

Quizplus · Accepted Answer

The modified duration is calculated using the formula: Modified Duration = Macaulay Duration / (1 + (Yield to Maturity / Number of Periods per Year)). Here, the Macaulay Duration is 5.5, the Yield to Maturity is 6.2% (or 0.062), and there are 2 periods per year (semiannual payments). Thus, Modified Duration = 5.5 / (1 + 0.062/2) = 5.33 years.

A Bond Has a Macaulay Duration of 5