Question

Kylie bought a 7-year, 5,000 par value bond with an annual coupon rate of 7.6% paid semi-annually. She bought the bond with no premium or discount. Calculate the Macaulay duration of this bond with respect to the yield rate on the bond.

Answer 1

Incomplete question. The options read:

a. 5.16

b. 5.35

c. 5.56

d. 5.77

e.  5.99

Answer:

b. 5.35

Explanation:

Remember, we use the Macaulay duration to determine the weighted average time before any bondholder would start to receive their expected bond's cash flows.

Hence, using the formula attached below, we could find the Macaulay duration for this scenario.  In the above formula, where:

C= the periodic coupon payment

y= the periodic yield

M= the bond’s maturity value

n= duration of bond in periods.

However, another way to get a solution is to employ an advanced calculator.

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