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Homework answers / question archive / You are given the following: The valuation date is December 31, 2017

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

Finance

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

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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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