1 Macaulay Duration

Calculate Macaulay Duration for the following bond

Face Value $1,000.00 Trading Date 4/20/2022

Bond Price $1,022.80 Maturity Date 4/20/2028

Coupon Rate 9.50% pa

Coupon Frequency 2 semi annualy

Maturity 6 years
Yield 9.00%

a) Draw Bond Price-Yield Curve for the bond

Interest Bond Price

Rate (10% Coupon
Bond) Bond Price -Yield Curve)
0% 1,800.00
1,570.00
1% #VALUE! 1,600.00
2% #VALUE! 1,400.00
3% #VALUE!
4% 1,200.00
#VALUE!
5% #VALUE! 1,000.00
Bond Price

6% #VALUE! 800.00
7% #VALUE!
600.00
8% #VALUE!
9% #VALUE! 400.00
10% #VALUE! 200.00
11% #VALUE!
-
12% #VALUE! 0% 2% 4% 6% 8% 10% 12%
13% #VALUE! Yield
14% #VALUE!

b) Calculate

(i) Macaulay Duration of the bond

Year (t) 0 1 2 3 4 5
CF $47.50 $47.50 $47.50 $47.50 $47.50
PV(CF) 45.45 43.50 41.62 39.83 38.12
Bond Price (Sum PV(CF 1,022.80
Weights (w) 100.00% 4.44% 4.25% 4.07% 3.89% 3.73%
Period* Weight (t*w) 0.04 0.09 0.12 0.16 0.19

Macaulay Duration 4.72

(ii) Modified Duration of the bond

Modified Duration = Mac. Duration / ( 1 + r/k)

Modified Duration 4.51

Or
Modified Duration = - (% change in bond price) / interest rate change

Yield Bond Price

9% $1,022.80
10.00% $977.84

Modified Duration 4.40%

(iii) Effective Duration of the bond

Yield Bond Price

8% 1,070.39
9% 1,022.80
10.00% 977.84

Effective Duration 4.733

(iii) Effective Convexcity

Convexity 12.89
-Yield Curve)

8% 10% 12% 14% 16%

Yield

6 7 8 9 10 11 12
$47.50 $47.50 $47.50 $47.50 $47.50 $47.50 1047.5
36.48 34.90 33.40 31.96 30.59 29.27 617.67
3.57% 3.41% 3.27% 3.13% 2.99% 2.86% 60.39%
0.21 0.24 0.26 0.28 0.30 0.31 7.25