#1 For the following municipal bond, calculate Macaulay Duration as of 6 Novembe
ID: 2785753 • Letter: #
Question
#1 For the following municipal bond, calculate Macaulay Duration as of 6 November 2017, in decimal years (e.g., 21.57 years). Assume the face value is $1000, and that coupon payments are made twice per year, on July 1 and December 1. MB MunicipalBonds.comSech Q. HOME MARKET ACTIVITY RESEARCH EDUCATIONBOND INSURANCENEWS MUN ETPS MY BONDS Bonds issue 23378RCY 23378RCYO Track nis sue Shore Subs Dahlonega Georgia Downtown Development Authority North Georgia Mba Lic Project CUSIP 23378RCYOo Insured? Maturity Date 2030-07-o 4 375% NO Moody's Rening Offical Statement ssuer Details History Report View Here View Here View Here Share Table Trade History Trade Trade Time Meturity Date Coupon Price Yield Trade Amount Trade Type Deta 2017-09-15 40tpm 2030 July 4375% 105639 1943 $15,000 Investor bought #2 A bond with a higher coupon will generate more income early on, relative to a bond with a lower coupon. Refer to #1 : Suppose that the coupon was higher-would the value of Duration be lower or higher? Page 1 of 3Explanation / Answer
Duration of a bond is the measure of sensitivity of bond to interest rate changes, higher the duration higher the sensitivity.
Duration of bond or Macaulay's duration of bond is basically Present value of a bond's cash flows, weighted by length of time to receipt and then the value is divided by the bond's current market value to obtain the duration of bond. Here by weighted by time to receipt means suppose a bond gives 100$ coupon every year then weighted cash flow will be 1*100 for year 1, 2*100 for year 2, 3*100 for year 3 and so on and then the discounting factor will be multiplied with these values to obtain the PV of weight cash flows after that the NPV will be divided by the present traded market value of bond to get the duration.
Bond's with higher coupons produces more income early on so they will have shorter duration as they will be less sensititive to interest rates.
Bonds with higher duration will be more sensitive to interest rate basis point changes.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.