RatedrillMacaulay duration
A time value of money problem from Ratedrill. Solve it with one answer box, with fresh numbers on every attempt and the formula, calculator keystrokes and Excel version in the worked answer, and it is checked the moment you submit.
The task
A $1,000 bond pays a 2% coupon once a year and matures in 8 years. Its yield to maturity is 2.25% per year, compounded annually. What is its Macaulay duration, in years? Give the answer to 2 decimals.
What this problem teaches
The formula: D = Σ t × PV(CFt) / Price. The modified duration is D / (1 + y) = 7.3: the approximate percentage price change for a 1 percentage point change in yield.
A hint if you get stuck
Duration is the present-value-weighted average time to each cash flow: Σ t × PV(CFt) divided by the bond's price.
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