You are given the following: The valuation date is December 31, 2017

Finance Nov 24, 2020

You are given the following: The valuation date is December 31, 2017. • The bond matures on June 30, 2019. • The annual coupon rate is 7.5%. • The effective annual yield is 5.50%. Find the Macaulay duration. (Hint: The next coupon payment will be on June 30, 2018.) a) 1.41 b) 1.43 c) 1.45 d) 1.91 e) 1.93

Expert Solution

Correct answer is C

Year	Cashflow	PVF @ 2.75%	PV	Wx	Wx *tx
0.5 (June 2018)	37.5	0.9732	36.4964	0.0355	0.0177
1 (Dec 2018)	37.5	0.9472	35.5196	0.0345	0.0345
1.5 (June 2019)	1037.5	0.9218	956.4067	0.9300	1.3950
			1028.4226	1	1.4472

Macculay's Duration = ∑Wx*tx = 1.4472 Or 1.45

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