Revision as of 00:22, 20 November 2023 by Admin (Created page with "The current price of an annual coupon bond is 100. The yield to maturity is an annual effective rate of 8%. The derivative of the price of the bond with respect to the yield to maturity is -700. Using the bond’s yield rate, calculate the Macaulay duration of the bond in years. <ul class="mw-excansopts"><li>7.00</li><li>7.49</li><li>7.56</li><li>7.69</li><li>8.00</li></ul> {{soacopyright | 2023 }}")
Nov 20'23
Exercise
The current price of an annual coupon bond is 100. The yield to maturity is an annual effective rate of 8%. The derivative of the price of the bond with respect to the yield to maturity is -700.
Using the bond’s yield rate, calculate the Macaulay duration of the bond in years.
- 7.00
- 7.49
- 7.56
- 7.69
- 8.00
Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.
Nov 20'23
Solution: C.
Duration is the negative derivative of the price multiplied by one plus the interest rate and divided by the price. Hence, the duration is –(–700)(1.08)/100 = 7.56.
Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.