Question

Find the bond duration with a settle ement date of May 27, 2012, and a maturity date of November 15, 2021. The bond’s coupon rate is 7%, and the bond pays coupons semi-annually.

The bond is selling at a yield to maturity of 8%. You can use Spreadsheet 11.2, available at www.mhhe.com/bkm; link to Chapter 11 material.

Short answer

Answer

Macaulay Duration	6.965883415
Modified Duration	6.697964822

Step-by-step solution

Step by Step Solution Step 1: Given information

Settlement Date	27-05-2010
Maturity Date	15-11-2019
Coupon rate	0.07
Yield to maturity	0.08
Coupons per year	2

Calculation of duration of the bond

To calculate the bond’s duration in excel, we can use the formulae given in the screenshot.

S.no.	Inputs
1	Settlement Date	27-05-2012
2	Maturity Date	15-11-2021
3	Coupon rate	0.07
4	Yield to maturity	0.08
5	Coupons per year	2
	Outputs
	Macaulay Duration	6.965883415
	Modified Duration	6.697964822