Calculate the Macaulay’s duration of a two-year corporate bond paying 6 percent interest annually, selling at par. Princ...
Calculate the Macaulay’s duration of a two-year corporate bond paying 6 percent interest annually, selling at par. Principal of $20,000,000 is due at the end of two years.
PLEASE EXPLAIN IT USING THE MACAULAY'S DURATION FORMULA (STEP BY STEP)
Homework Answers
Coupon =6%*20000000 =1200000
Since the bond is sold at par, hence coupon rate and YTM are same
=6%
Price of Bond is same as par value =20000000
Macaulay Duration =(1*Coupon/(1+YTM)+2*(Coupon+Par
Value)/(1+YTM)^2))/Price
=((1*1200000)/1.06+2*(1200000+20000000)/1.06^2)/20000000=1.94
years
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