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Nov 20'23
Exercise
A bond is priced at 950, giving an annual effective yield to maturity of 9%. At 9%, the derivative of the price of the bond with respect to the yield rate is -4750 .
Calculate the Macaulay duration of the bond in years.
- 4.59
- 4.62
- 5.00
- 5.41
- 5.45
Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.
Nov 20'23
Solution: E
The price is P = 950. The modified duration is
[[math]]
\frac{-P'}{P} = \frac{-4750}{950} = 5.
[[/math]]
Macaulay duration is (1.09)(5)= 5.45.
Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.