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Macaulay Duration Practice Questions

The document contains practice questions focused on calculating the Macaulay Duration for various types of bonds, including standard bonds, zero-coupon bonds, and bonds with different coupon rates and maturities. It also addresses the impact of yield to maturity changes on duration and includes a question on calculating the duration of a bond portfolio. Each question is designed to enhance understanding of bond duration concepts and calculations.

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12 views2 pages

Macaulay Duration Practice Questions

The document contains practice questions focused on calculating the Macaulay Duration for various types of bonds, including standard bonds, zero-coupon bonds, and bonds with different coupon rates and maturities. It also addresses the impact of yield to maturity changes on duration and includes a question on calculating the duration of a bond portfolio. Each question is designed to enhance understanding of bond duration concepts and calculations.

Uploaded by

umaimasaeedkhan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Practice Questions for Macaulay Duration

1. Basic Bond Duration Calculation:


A bond with a face value of $1,000 pays annual coupons at 8% and matures in 4
years. The yield to maturity (YTM) is 6%. Calculate the Macaulay Duration of the
bond.

2. Zero-Coupon Bond:
A zero-coupon bond with a face value of $1,000 matures in 7 years. Calculate its
Macaulay Duration.

3. Semi-Annual Coupon Payments:


A bond with a 10-year maturity, semi-annual coupons at 5%, and a YTM of 4% is
given. Calculate its Macaulay Duration.

4. Comparing Coupon Rates:


Calculate the Macaulay Duration for two bonds:
 Bond A: Coupon rate of 3%, 5 years to maturity, YTM of 4%
 Bond B: Coupon rate of 6%, 5 years to maturity, YTM of 4%

5. Impact of YTM Changes:


A bond with a coupon rate of 7%, annual payments, 10-year maturity, and YTM of
5% has a Macaulay Duration of 7.8 years. What would happen to the duration if the
YTM increases to 6%?

6. Weighted Cash Flow Approach:


A bond has the following cash flows over 3 years with a YTM of 4%:

Yea Cash Flow


r ($)

1 50

2 50

3 1,050
Yea Cash Flow
r ($)

Calculate the Macaulay Duration using the weighted average of cash flows
approach.
8. Short vs. Long Maturity Bonds:
Calculate the Macaulay Duration for the following bonds, assuming a YTM of 5%:
 Bond C: 3-year maturity, coupon rate 4%, annual payments
 Bond D: 10-year maturity, coupon rate 4%, annual payments

9. Duration of a Bond Portfolio:


A bond portfolio consists of:
 Bond X: Macaulay Duration of 5 years, weight 40%
 Bond Y: Macaulay Duration of 7 years, weight 60%
Calculate the Macaulay Duration of the entire portfolio.

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