Question

A bond with a coupon rate of 8 percent sells at a yield to maturity of 9 percent. If the bond matures in 11 years, what is the Macaulay duration? (Do not round intermediate calculations. Round your an

Answer 1

The Macaulay duration measures the weighted average time until an investor receives the present value of all cash flows from a bond. To calculate the Macaulay duration, we need to calculate the present value of each cash flow and then divide the sum of their products by the initial investment.

Step-by-step explanation:

The Macaulay duration measures the weighted average time until an investor receives the present value of all cash flows from a bond. To calculate the Macaulay duration, we need to calculate the present value of each cash flow and then divide the sum of their products by the initial investment.

Step 1: Calculate the present value of each cash flow. The coupon payments are $80 per year for 10 years, and the face value payment is $1,000 at the end of the 11th year.

Step 2: Calculate the present value-weighted time for each cash flow. Multiply the present value of each cash flow by the number of years until it is received.

Step 3: Sum the present value-weighted times. Add up the products from Step 2.

Step 4: Divide the sum from Step 3 by the initial investment ($1,000) to get the Macaulay duration.