Calculate the Macaulay duration for a five-year, $1,000 par value bond, with a 6 percent coupon and a yield to maturity of 8 percent. Interest is paid annually.
A) 6.44 years
B) 5.25 years
C) 4.44 years
D) 2.50 years
E) 1.25 years

Question

Quizplus · Accepted Answer

The Macaulay duration calculates the weighted average time before a bondholder receives the bond's cash flows. The formula for Macaulay duration is the present value of each cash flow multiplied by the time it is received and then summed, all divided by the price of the bond. For this bond, the calculation involves the present value of each annual $60 coupon payment and the $1,000 principal payment, all discounted by the yield to maturity of 8%. The correct calculation results in a Macaulay duration of approximately 4.44 years.

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